The Bank of Canada raised its benchmark interest rate by a quarter of a point to one per cent and this rate change will have quite an impact on consumers and savers. It is expected to affect banks on mortgages, lines of credits, savings accounts and other financial vehicles.
The Canadian dollar gained more than a penny in reaction to the news on Wednesday, and was briefly changing hands at 82 cents US — the loonie’s highest level since June 2015.
It may have come as a surprise to have two rate increases this year (the last one was in July) but data points showed the Canadian economy was performing better than expected.
Within minutes of the central bank’s decision, currency swap contracts were assigning a two-in-three chance of another rate hike before the end of the year.
Here are ways Canadians are going to be affected by this interest rate hike.
Those with variable-rate mortgages, will immediately feel the increase in the overnight rate.
For homeowners who have locked in a fixed-rate mortgage, nothing will change until renewal.
• Home equity lines of credit (HELOCs)
The days homeowners used their homes as an ATM could be ending, for a while at least Canadians- borrowing against their home equity could quickly owe more now that interest rates have risen, as those loans are frequently variable rate.
• Credit cards
Credit cards generally charge interest at a fixed rate, according to Laurie Campbell, CEO of Credit Canada Debt Solutions. Although that fixed rate can be quite high, it won’t increase with the Bank of Canada’s overnight rate.
• Lines of Credit
After variable-rate mortgages, Canadian borrowers will feel the Bank of Canada’s interest rate hike most heavily in their lines of credit as they are linked to the prime rate.
• Student loans
Government student loans don’t require payment until six months after leaving school, although they do accrue interest during that period. The rates can be either fixed or floating. Parents take note.
• Automobile loans
Auto loans tend to be fixed-rate. If interest rates continue to increase, that could make monthly payments for future auto loans more expensive and affect the kinds of cars Canadians choose to buy.
• Savings accounts
Higher interest rates could benefit Canadian savers. Recent history suggests an increase to the overnight rate will translate into “a corresponding increase” in interest earned from savings accounts.
Overall this rate hike is expected to see real estate rates rise if at all, a little more slowly. Those real estate speculators and investors in the market who’ve already over-stretched could be re-evaluating their investments given interest rates are only going to go higher while home prices may not be going up as quickly as they once anticipated. That could impact the real estate market.- CINEWS