What effect will rising interest rates have on your wallet?
Finance Minister Jim Flaherty is concerned about the impact rising interest rates will have on Canadian family budgets in 2011.
“Our concern at the moment is as interest rates go up, which they inevitably will, we want people to be able to afford their obligations.”
Flaherty believes that there has been a shift in how Canadians view their homes and that a return to the past might be a wise move.
Nonetheless, some homebuyers are worried they’re running out of time to lock in to an affordable interest rate in a heated housing market. Others are wondering if it's time to renegotiate if they can, or consider locking into a fixed rate loan.
Or perhaps you're a bit more worried about big financial commitments like borrowing for home renovations or motor vehicles?
But when, and over what time frame, rates will start to move is still unclear. Some firms, like Bank of Montreal, are predicting that rates in Canada could rise by three quarters of a percentage point by the end of the year. Others are forecasting a more modest jump.
Nobody, however, see rates heading down from here.
Analysts still expect the Bank of Canada to remain on the sidelines until 2nd quarter of 2011. On average, major economists now predict a two percentage point increase in the overnight rate over the next 24 months.
Their outlooks, if accurate, imply a five per cent prime rate by December 31, 2012. Prime rate is currently three per cent and the 10-year average of prime is 4.48 per cent.
Here, thanks to CanadianMortgageTrends, you'll find a summary of the latest year-end interest rate projections from each of Canada’s Big six banks.
What do rising interest rates mean to you? Will you be jumping in to get a taste of low rates before they disappear? Or is the next order of business paying off the debt you already have?
By Gordon Powers, MSN Money
Posted by: SP | Jan 17, 2022 10:00:49 AM
Rising interest rates are good news and the faster they come the better, keeping rates so far below the natural 6%-8% has caused nothing but problems. Bring them up quickly to reward the savers and the prudent.
Posted by: Tenacious Otter | Jan 17, 2022 10:49:37 AM
I've often been asked why I tend to carry so little debt. Regardless of interest rates, I've always been that way. I'm not going to say I won't be jumping in to taste low interest rates while they are here, there is an investment I am looking at. I will say that I will maintain a very healthy ratio of capital to debt. I'll also say that as interest rates move up, opportunity for those that are prudent will become more profound, if played carefully. I'd prefer not to see it come fast, I've seen that before, I'm not particularly fond of the stress. I tend to believe that it will happen faster than economists are currently predicting, much to the dismay of many. My intention is to continue to pay down debt as fast as is possible, it's my belief that it's the best investment anyone could ever make. It's also my belief that maintaining a very healthy capital to debt ratio is an advisable position.
Posted by: Susan Fleiger | Jan 17, 2022 1:12:03 PM
The above posts are nice if you have the cash and income to support it - but unfortunately in the real world, many of us are living pay cheque to pay cheque even without high debt. I see the problem in household debt as simply trying to live - paying increasing power rates and fuel with no help or support from our Government. Perhaps they should look at that before they make it even more difficult for Canadians to buy homes or use the equity they have in their homes. Every year the power companies apply for rate increases and every year they are approved - the fuel costs are becoming sinful and people, hard working Canadians are trying to survive and God help those making minimum wage, they probably have to choose between food and heat -
Posted by: Joe Citizen | Jan 17, 2022 3:58:06 PM
I think if Jim Flaherty is concerned about Canadian family budgets, his time might be better spent taking a closer look at the cumulative effects that fees and sales tax increases have on everyday living. Big ticket items such as vehicles and houses are purchases that are very few and far between (if they're even bought at all) for the average Canadian, so debt interest rates have little impact for many people. The old axiom that if you can't afford to pay for something then don't buy it holds true no matter what the interest rates may be and especially so for non-essential items. It does stand to reason though that allowing people the means and capacity to accumulate and retain a substantial portion of their own earnings or pensions would seriously reduce the need to borrow sizable amounts in the first place, rendering the effect of moderate interest rate increases a fairly moot point. The lower middle-classes and the growing number of senior citizens (mainly on fixed incomes) do however feel the sting of increasing sales taxes and other consumption fee increases on services like insurance, municipal and school taxes and other government administered projects. There is a huge difference between the voluntary costs incurred in wanting to get a bigger home or a fancier vehicle and those essential costs in trying to maintain one's existing home and health.
Posted by: Tenacious Otter | Jan 17, 2022 6:14:35 PM
I do live in the real world, you'll notice I said capital to debt ratio, not debt to capital ratio. I do think Mr. Flaherty is concerned about fees and taxes, specifically the ability of government to collect them.
Posted by: Tenacious Otter | Jan 17, 2022 6:44:12 PM
Why do I think I live in the real world, because I picked a career that affords me a job that may or may not be there on a week to week basis. Yes that's right, I may or may not have a job next week, in fact, to the best of my knowledge at the moment, I don't. Am I collecting E.I., the answer is no. Will I be able to pay my bills, the answer is yes. I believe it's the week in week out jobs that have pacified this nation into taking on more debt than they are able to handle. Lose the job for a month, and can't carry the debt. Interest rates go up, and can't carry the debt. If it takes government to institute rules for banks to play by to reign in debt, than so be it. It's one of the reasons this country has a healthy banking sector. Our governments sets the rules for the banking sector, governments we elected. Although personally I didn't vote for this one, but I live with what the majority have chosen.
Posted by: Northern Ontario | Jan 18, 2022 7:47:24 AM
While interest rates will gradually go up in the next 1-2 years, it won't be as much as people think. If the rates go higher now, the Canadian Dollar will rise even higher. Rate hikes are directly attached to inflation and more importantly, the Canadian Dollar. Most Economists agree that the higher dollar affects exports which is so important for Canada. I believe a 90 cent dollar is better. At least Canadian companies woke up in the last several years and realized they couldn't depend on the 80 cent dollar to survive. They have made proper cuts (hardship for some who lost their jobs) to compete with our dollar at par. The rates will begin to rise higher once the US economy gets going in 18-24 months which will create inflation above 3.5-4%. When this happens, rates will rise in the US, and Canada will follow. In my opinion, expect rates to rise 1% this year and then another 1 -1.5% the year after. We should all start planning accordingly. For those with mortgages of $200K, that means another $5000 per year if rates do rise by 2.5% in a couple of years. Don't kid yourselves. It has to happen because of all the money that was injected into the economies from Canada and the US. Start budgeting now.
Posted by: Northern Ontario | Jan 18, 2022 10:08:18 AM
Joe Citizen is spot on. Keep in mind that paying Interest is really only applicable when you borrow money. Chances are, you are doing so for a home and a car. The problem becomes when people are paying interest on anything else like a loan for a recreation vehicle, a cottage or even visa cards. There is no need for that if you live within your means and save for that extra item you really want but don't really need.
When interest rates got ridiculously low, that's when consumers should have paid off more of their mortgages. Instead, they chose the opportunity to borrow against their credit line (low interest) and bought those things they REALLY WANTED but didn't really need. It's a terrible cycle we get into. Once the rates go up, we will need to stop buying things to pay off the higher interest on the credit line. That will force businesses to layoff employees with less profits. We go round and round.
Posted by: Tenacious Otter | Jan 19, 2022 12:16:16 AM
The Canadian dollar isn't rising, it's just not falling as fast as the American dollar or the Euro. In relation to asian currencies. Neither is the Aussie dollar. Asian interest rates are moving up, central bank rate in China is 5.81%, and they intend 2 more rate rises in first half of the year. Still want to buy G-20 bonds paying less than 2%, do the math.
Posted by: zakimar | Jan 19, 2022 6:41:33 AM
Rising interest rates will keep us indebted to the big bank monopolies for that much longer. It should be criminal that a $300 000 mortgage will cost over $1 million to repay, but our dirty politicians are in the pockets of big business and especially the banks. No wonder God cursed the jews for their usury and sent Jesus to overturn the tables of the filthy money lenders, and that's why they had him crucified.
Posted by: Tenacious Otter | Jan 19, 2022 11:41:51 AM
I shouldn't have said G-20, but rather G-8. I'm appalled that because of a comment attributed to a certain individual, an ethnic group has been persecuted for millenia. Makes me wonder whether the species will survive.
Posted by: Albertan | Jan 19, 2022 7:32:38 PM
Ok. To have a $300,000 mortgage cost over 1 million on a 30 year term (longest now available) you would need to be paying at least 10.65% interest. If you are paying that then you have only yourself to be upset at as the current 5 year rate is 3.69%. Are we a little given to exaggerating?
Also do you know the definition of a racist? Here it is from Wikipedia: Racism is the belief that the genetic factors which constitute race are a primary determinant of human traits and capacities and are cause for associated discrimination. I have often seen your posts on here and you seem able to blame certain definable groups for almost everything. Also you seemed to have missed the biblical point that Jesus was a Jew.
I'd like to disclose that I'm not Jewish but have several good friends I admire who are. Also I'm not a follower of islam but again have several good friends who I admire who are. I can also say I have Catholic friends, buddist friends, shinto friends etc. I'd guess on the whole religion thing I'm pretty much neutral as I have seen how much joy people of many different faiths get from their faith. I think that is wonderful. I think, however, that any individuals that take offense or attempt to persecute individuals of any creed for their beliefs or genetic makeup should be hunted down and destroyed. So take warning Zakimar, I'm not the only one like me out there and eventually our patience will wear thin.
Lastly Zakimar you just plain seem angry at the world. Instead of thinking our politicians are corrupt (they are likely some of the least corrupt in the world), that the banks are out to fleece you (really at 3.69% its a pretty sweet deal), and that certain racial groups are out to get you why don't you instead live, laugh, love and thrive is this wonderful country called Canada.
Posted by: well.... | Jan 24, 2022 2:15:27 AM
Amen to Albertan.....it annoys me when people like Zakimar post statements like the one just made. Interest rates are low although 3.95% seems a bit low, at least with the chartered banks. As for a rising interest rate yes, that will affect me since my income has remained stable for the last couple of years. As a result my buying power has dropped and, as inflation raises the cost of items, it can only drop more. The simple truth is that many people have had to borrow just to try and maintain a reasonable standard of living....food, clothing and all those unessentials. What would be nice is if they would bring back the idea of a tax deduction for mortgage interest, at least enough to help out the lower income people.