Homeowners preparing to pay more following interest rate hike
Published Wednesday, July 11, 2018 5:11PM CST
Last Updated Wednesday, July 11, 2018 6:05PM CST
Some people may have to dig a little deeper to cover mortgage payments after the Bank of Canada raised the key interest rate.
It's a move that comes amid a trade dispute between Canada and the United States.
But the central bank feels confident the economy can withstand the increase.
The Bank of Canada raised the key interest rate a quarter point to 1.5 per cent prompting some of the big banks to increase prime lending rates.
The central bank says the economy is in a good place and inflation is on target.
"Higher interest rates will be needed to keep inflation on target and that's consistent with our actions today,” said Bank of Canada governor Stephen Poloz.
University of Winnipeg economics professor Phil Cyrenne said the trade dispute between Canada and the U.S. is something the bank will be watching closely moving forward.
He said some observers are surprised by the hike, because not everyone agrees about how well the economy is performing.
"The oil industry, there's still questions there, it's rebounded a bit and if tariffs go on automobiles all bets are off," said Cyrenne.
After the fourth rate hike in the past year, it’s the first time the rate has been this high since December 2008, and the central bank has signalled the upward trend is likely to continue.
It means consumers with variable rate mortgages or upcoming mortgage renewals will have to pay more.
"At a quarter point it's not going to change a lot right now, but the Bank of Canada does anticipate to have to continue to raise rates in the future to keep inflation in check, so that's something to be mindful of,” said Philip Herner, financial advisor with Assante Capital Management Ltd.
With two daughters off school over summer, finding affordable activities is key for Florence van Dijk, especially following news of yet another interest rate hike.
She says the increase will catch up with her family "in a year or so when our mortgage is up for renewal.”
"My experience having come from Ireland five years ago is I've experienced recession and I've experienced interest hikes before so I'm cautious at this stage," said van Dijk.