The Bank of Canada announces another hike
This October 24th, the Bank of Canada has decided to take another hike and set it to 1.75%. Here are the steps you can take to decrease its impact.
This October 24th, the Bank of Canada has decided to take another hike. Now the benchmark interest rate is set at 1.75%, one more quarter-point than before.
The interest rate hike comes as no surprise. Several economists have been predicting another rate hike after seeing a trend. Since July 2017, the bank has hiked it five times.
The decision was based on the economy getting stronger because of the new free trade deal and other factors, but it still brings some upsetting news to Canadians. There is concern about rate hikes since many already struggle with debt, and the impact will not make things better for some. First-time home buyers might have to adjust their budgets and expectations, and many homeowners will have to change their spending habits.
Economists predict consumer spending will weaken as Canadians across the country cut their budgets and start saving money to avoid financial trouble. But the BoC thinks the economy can take it. For them, household spending will return to normal at a “healthy pace” and employment income growth is expected in the years ahead. The BoC does have a reason to be optimistic. Remember that inflation has actually decreased to 2.2%.
A rate hike is no reason to panic. There are some steps you can take to decrease its impact. First, never go for a mortgage outside of your budget or one that makes saving a constant struggle. The amount you are willing to pay for a house should be number you feel comfortable with. It needs to leave room for extras, savings and unexpected situations like a rate hike. When times like this hit, you will regret accumulating so much debt if you loan is not the right one.
If you have a variable mortgage, check how your finances will be affected by any decision the BoC takes beforehand. For those with a fixed mortgage that is about to be renewed soon, the best thing to do is start shopping for the best deal. Your current lender might not be able to offer you an attractive rate, but another can. Consider switching if it will help your financial situation.
Will there be another interest rate hike in the future? Possibly. Many economists predict at least one more hike. But the BoC will continue to see how the economy adjusts and how household debts continues to affect Canadians.