2018-01-18
The Bank of Canada raised its key interest rate, the overnight rate, by a quarter percentage point to 1.25 percent on January 17, 2018, the highest it has been since 2009. This is the third interest rate hike Canadians have seen in the last six months, catalysed by strong employment numbers and a growing economy across most provinces in 2017.
With the increase in the overnight rate, all major banks, as a result, have raised their prime rates, which effects interest rates on lines of credits and variable rate mortgages, and interest rates on fixed-rate mortgages.
An illustrative example would be a situation where a home owner has a $300,000 variable rate mortgage. As a result of this quarter point increase in the prime rate, the home owner will have to pay an extra $40 each month in mortgage payments. For those in the process of renewing their fixed rate closed mortgages in the next few months, the increase in monthly payments will likely be more dramatic as the interest rate increase may be one percent or more. In the above example, the one percent increase would increase monthly payments by $250 per month.
That might not seem like a lot, but according to the recently released MNP Consumer Debt Index, where by 48 percent of Canadians stated that they are within $200.00 of not being able to pay their bills and debt obligations, every dollar increase in debt servicing costs causes increasing difficulties and stress to balance their budgets.
With interest rates projected to continue to rise, this is an excellent time to review your financial situation and determine if your household budget could survive the ongoing increases in interest rates.
If you've already felt the pinch of increased interest rates and are worried further increases to your debt costs will mean you can't pay your bills, come see a Licensed Insolvency Trustee (LIT) with MNP. Your first meeting with the experienced debt advisors at MNP is always free of charge. We will review your situation, and provide an assessment as to the options available to you so that you can regain control over your finances. Don't let rising interest rates get the better of you.
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