Canadian consumers can expect to see the impact of the latest move by the Bank of Canada to nudge up interest rates again in several areas of the finances.
“It’s going to raise borrowing costs a little bit for everyone,” Eric Lascelles, chief economist at RBC Global Asset Management, told CBC News Network.
Here’s where and how consumers could feel the hike:
1. Mortgages
Consumers with variable-rate mortgages, also known as adjustable-rate mortgages, could feel the increase in the overnight rate very quickly if financial institutions begin pushing up their lending rates.
Canadians with a fixed-rate mortgage won’t have to grapple with the impact until it’s time to renew at the end of their fixed term. Even then, they could wind up saving money if their renewal rate is lower than when they initially got their loan.
“Anyone who currently has a variable rate mortgage should consider if now is a good time to lock into a fixed-rate mortgage,” said James Laird, co-founder Ratehub.ca and president of CanWise Financial mortgage brokerage.
Laird also said anyone currently looking for a home should get a pre-approval that guarantees today’s fixed rates for 120 days.
2. Lines of credit/Home equity lines
In a report issued Sept. 1, RBC economist Laura Cooper said Canadian households added $10 billion to $12 billion to their consumer credit balances in each of the past four quarters.
“Borrowing from banks accounted for the bulk of the rise led by personal lines of credit, notably home equity lines of credit,” she said, adding that this component made up more than half the rise in the second quarter of 2017, its greatest contribution since 2011.
Against that growth in consumer credit, economists say Canadians will feel the biggest impact, after their variable-rate mortgages, in their lines of credit, which are tied to the prime rates charged by banks.
3. Credit cards
The bulk of credit card interest is charged at a fixed rate, although some cards do carry a variable rate. So it can be worth checking the rate on any cards you use.
However, if you begin to miss payments on your card debt, some cards will begin charging a higher interest rate on your outstanding balance.
4. Student loans
Student loan interest rates can be either fixed or variable. As with mortgages, somebody repaying a variable-rate student loan could see an immediate hit from the latest Bank of Canada hike, while those on fixed rates won’t see the bump until it is time for renewal.
The road ahead
Cooper pointed out in her report on credit growth that the country’s heavy borrowing is likely to subside as support for monetary tightening increases.
“A notable shift in major housing markets alongside elevated household indebtedness and tighter financial conditions are likely to dampen credit growth and eventually temper consumer spending growth,” Cooper said in the report.
“We anticipate that households on the whole will be able to absorb rising costs given an expected gradual pace of policy tightening and ongoing hiring gains. But as is the case with all goods things — the borrowing binge is likely coming to an end,” she said.
How a small interest rate change can cost you big1:36