Back in early July, the Bank of Canada announced that its key interest rate would increase from 0.5% to 0.75%. After months of speculation, during which economists continually warned that an increase was inevitable, the Bank of Canada finally determined that the economy was stable enough to handle such an increase.
What’s more, that 0.75% rate is not likely to hold. Several economists have noted that a further Canadian interest rate increase is highly likely, if not with the Bank of Canada’s September announcement, with the one following.
As Canadian Business explained (in several easy-to-understand graphs), a stable economy was one determining factor for the decision to raise the rate, and steady employment growth was a big part of that.
Other factors that led to this decision included business expectations for future sales, rising demand for Canadian-made products (exports), and several solid years of retail sales growth.
Furthermore, with things continuing to look good, many have argued that a further rate hike is to be expected. That being said, the Bank of Canada has been strongly cautioned to take its time when handing out another rate increase, especially since the economy has just recently shown signs of regrowth – not to mention the serious impact this rate, and any further rates, stand to have on Canadians and their debt.
What kind of impact are we talking about? What many Canadians don’t realize is that rate increases, even small ones, can have major impacts, especially for your mortgage or personal credit lines. For example, a 1% rate increase does not signify a 1% increase in your payments. In fact, a 1% rate hike could actually result in a 10%+ increase in your mortgage payments. For instance, if you have a $200,000 mortgage with an interest rate of 3%, you’re paying $6000 in interest per year. However, if that rate increases to 4%, the interest grows to $8000 per year, which means you’re actually paying 33% more.
Whatever happens – whether the Canadian interest rate jumps again in the fall of 2017 or early 2018 – getting a handle on your debt before it becomes an even bigger problem just makes sense. If interest rates increase yet again, and thus your minimum payments rise, you may find yourself dealing with creditors and collection calls you can’t shake.
At Spergel, we have over 25 years of experience helping Canadians find solutions to their debt problems. If you’re concerned about another Canadian interest rate increase, you’re not alone – we’re here to help.
Call us today, toll free, for a free consultation: 310-4321.