Increase in the interest rate: don’t panic for your mortgage

Marie-Eve Dumont

Wednesday, 12 July 2017 22:28

UPDATE
Wednesday, 12 July 2017 22:28

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The 0.25% increase to the key rate of the Bank of Canada will change very little for most people, say experts.

“For many people, this will be a meal at the restaurant less per month “, shows Denis Doucet, Multi-Loans.

This first increase in seven years is expected to increase in the same way the bank interest rates for those who have variable rates and future borrowers. But these are the households already highly indebted, who live from one payday to the next, that will be really affected.

What is the rate ?

The Bank of Canada’s bank of financial institutions “. For them, the key rate of the Bank of Canada is the reference for determining the prime rate they use to establish variable rates and rates on lines of credit when you borrow. The interest rate that the financial institution shall pay to the Bank of Canada when it borrows money is thus the rate which was increased this morning to 0.75 %.

Variable-rate mortgages

The change in the key rate will not affect people who already have a fixed rate mortgage. Borrowers who have a variable interest rate will have to pay a few dollars more, but will still pay less interest as compared to those who have a fixed rate. In effect, the variable rate should be around 2.20 % to 2.50 %, with the rise, while the fixed rate is expected to range from 2.49 % and 2,99%.

Here is an estimate made by experts of what should represent a monthly increase according to the amount of the mortgage.

Margins and personal loans

It will cost a bit more expensive to borrow money on lines of credit and personal loans have variable rates. On the side of the car loans, which are generally at fixed rates, there should not be any change.

Investors, winners

Savers are the winners of the increase in the interest rate as savings accounts, guaranteed investments, or even savings bonds of Canada, that is to say, savings accounts of which the capital is guaranteed, will have an interest rate a little higher.

“The baby boomers, the retirees, who often depend on interest income for their daily lives will be the most advantaged. These are people who often have no debt, their house is paid for, so they are not affected for loans. This will be a marginal increase because these rates are still very low, but they will still be able to benefit from it, ” says Jimmy Jean, an economist at Desjardins.

Canadian Dollar

A higher rate increases the value of the canadian dollar. A dollar top will lower the price :

• travel outside of the country
• imported food
• gasoline
• imported products

Moreover, even if the cost of importing goods is lower, consumers will not see may not be saving on the shelves or at the pump since businesses may pocket the difference.

Access to the property

A rise in interest rates may be an obstacle to the access to the property, even if the latter are still very low.

“It may be that some people are going to have a little fear, which is not necessarily a bad thing. If consumers are afraid, it is a sign that it should be exercised, that it is necessary to ensure that one does not run up debt beyond our ability to pay, ” points out Sylvie De Bellefeuille, lawyer, counsellor, budget and counsel for Option consommateurs, recalling that the average debt ratio of Canadians is of 167 %.

The evolution of the interest rate for 10 years