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Are interest rates going up in Canada?

Posted on 14 July 2023

Written by Samantha Galea

It can feel unsettling when changes are being made across the country – especially so when the changes can affect each and every one of us. In the past year, we have seen the cost of living increase, and interest rates rising. But is this set to continue? Following another interest rate hike from the Bank of Canada this week, in this article we explore what further hikes could mean for Canadians. So, are interest rates going up in Canada? Does it look like there could be more interest rate hikes to follow? In this article, we share everything you need to know about interest rates in Canada.

What is going on with interest rates in Canada?

Back in June, following much speculation, the Bank of Canada raised its benchmark interest rate to 4.75%. The overnight move became the bank’s highest level of interest since 2001. The hike in June was the first time the Bank of Canada had increased its rate since January, when it promised to pause its continued rate hikes to see if inflation could be brought down. Canada’s main banks all matched the interest rate hike, with prime lending rates increasing to 6.95%. Despite intentions for the increases in interest rate to slow down growth in the Canadian economy, it has proven to withstand more than expected. This led to another increase in June, and a rate hike this week to a whopping 5% While some economists expected these additional increases, they have come much sooner in the year than most had expected, and it does not look as though this will be the last.

Are interest rates going up in Canada?

It seems as though at least another interest rate hike is increasingly likely. Investors are anticipating at least one more before the end of the year, to see the rate at around 5.25% or more. The primary impact of more hikes is for mortgage holders, many of whom have already experienced significant increases in their mortgage payments. While before the recent interest rate hikes you could find a variable rate for less than 2%, now it is difficult to find one under 5%. Some economists are sceptical of the Bank of Canada’s decisions to increase the interest rate, explaining that it will prove damaging to struggling Canadians and not fixing inflation. High mortgage costs do not just affect homeowners – they also cause problems for renters too, who will also need to absorb the cost. This is on top of already expensive rents across Canada. It can often take much longer than six months for the full impact of an interest rate hike to be felt too. The impact of interest rate hikes can be reflected in the amount of Canadians finding themselves insolvent.

What impact will the interest rate increase have on Canadians?

Currently, the pressure of inflation has meant an increase in the cost of living, with products like groceries costing us more over the last year. Despite this pressure of inflation, if the interest rate continues to increase then demand in the Canadian economy will settle and prices could begin to decrease. Ultimately, the policy interest rate which is set by the Bank of Canada is a reference point for the rate that banks and financial institutions will use to set their charges to customers. This affects the rates you pay on your mortgage, home equity lines of credit (HELOCs), and any other types of credit. Below, we will explain in detail what the interest rate increases mean for each.

What do interest rate increases mean for homeowners?

If you are buying a home for the first time or have plans to renew your mortgage soon, you will likely be affected by the increase in interest rate. You will need to consider if you can handle your mortgage payments at an increased rate than you may have received previously. If you are currently on a fixed-rate mortgage at a lower interest rate, you will most likely face a substantial increase in your monthly payments. You will need to consider how this will impact your budget, particularly if you have a shorter amortization period, or if you have a relatively large balance on your mortgage. You should of course consult a mortgage broker or a lender before committing to a new mortgage. If you have a variable rate mortgage, you will likely find that the recent interest rate rises will mean that your payments mirror the prime interest rate which could make them costly. If you are facing a substantial mortgage debt and are unsure of what to do next, you may wish to speak to a Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. This makes them well placed to advise you on your circumstances.

What do interest rate increases mean for savers?

If you are trying to save, the interest rate increases could come as good news for you. The recent rate hikes could mean you find you have a slightly higher rate on your savings accounts. Although banks and financial institutions are not compelled to increase their savings account interest rates in line with borrowing interest rates, many of them will decide to do so in order to remain competitive for consumers.

How can you prepare for rising interest rates?

The continual increases in interest rate since the beginning of 2022 have made some immediate changes for those taking out loans. This is especially true for homeowners who may have benefited from having a low interest rate for the past few years. Although no one can be sure of what will happen to interest rates in the future, here are a few tips and tricks for being more prepared for rising interest rates:

  • Create a budget and stick to it as closely as you can to keep tabs on your spending
  • Save an emergency fund for unexpected expenses
  • Work with a financial advisor to create a plan. If your circumstances change, make sure to rework the plan accordingly
  • Try to pay off your debt as much as you can by reducing your spending. Should interest rate hikes happen, you will have a head start

What to do if you are worried about interest rates going up in Canada

If you are anxious about inflation and do not have a plan, at Spergel, we are here to help. If you are struggling with unmanageable debt, it may be time to tackle it so that you can begin a fresh financial future. We can help you to become better prepared for inflation by reviewing your finances and assessing any opportunities for debt relief where required. We can inform you of strategies and forms of debt relief that may help to offset the threat of inflation for your unique financial circumstances. No matter what support you need with your debt, we have been helping Canadians gain debt relief for over thirty years, and are here to help you too.

Still wondering ‘are interest rates going up in Canada?’ If you are worried about what this means for you, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees can help you to combat the impacts of a rising interest rate across Canada, and explore opportunities within your finances to manage and reduce or eliminate debt completely. Reach out today – you owe it to yourself.

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Samantha Galea

Samantha Galea is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) who started working with Spergel as a summer student in 2010. With her socio-political background, Samantha is committed to breaking the stigma associated with bankruptcy so that individuals and families can properly understand all of their options on their path to debt freedom. She is also our resident expert on student debt and collection agencies, as well as the manager of our Brampton office. Outside of work, Samantha is an avid reader of historical non-fiction and world traveler.

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