STELTER: Brace yourselves for the latest interest rate hike

The Bank of Canada is expected to hike its overnight interest rate on Wednesday and that will only get more painful financially.

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With this approach, the Bank of Canada is doing its best to curb inflation. It is expected to rise to 5% after rising to 4.75% last month. The idea is that if it makes borrowing more expensive, people will spend less, resulting in falling prices and slowing Canada’s economy.

It will also affect people’s mortgages, loans, and credit card debt. A fun fact is that 75% of Canadian households are in debt and the country is the most indebted country in the G7, says the Canada Mortgage and Housing Corporation. The CMHC mainly blames rising real estate prices for this debt.

James Laird, co-CEO of and president of mortgage lender CanWise, said adjustable-rate mortgage rates would rise immediately if the Bank of Canada hiked the rate by 25 basis points.

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“If your mortgage needs to be renewed within the next year, it’s a good idea to agree an interest rate with a new lender now,” Laird said in a statement. “If interest rates continue to rise in the future, it should make sense to cancel your existing mortgage and switch to this new lender before your lock-in period expires to lock in the lower interest rate.”

The news is grim and will be painful. One has to wonder how far the bank will push these rate hikes before it’s satisfied. According to TD Economics, that 5% is expected to last through the first quarter of 2024.

TD also says that inflation in Canada is likely to have peaked and BoC core inflation rates are unlikely to hit 2% until mid-2025.

What can Canadians do in the meantime? With every rate hike, news editors across Canada try to get that information out to the masses. It may seem alarming when headlines use the word “rate hike” with historical references. It is difficult to understand from this what it actually means.

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The folks at Bromwich+Smith, who help people in debt, have shared some insights into the future, much of which has already been touched upon.

Renters may find that their monthly payments go up when their lease is due to be renewed, and of course more interest is paid on any debt, which includes mortgages. That’s a given. This will mean less disposable income for people, which is very important for many people these days.

The tip here, of course, is to limit discretionary spending. Eating out less, storing clothes longer, shopping in bulk and freezing items, those are the basics. If you can, set your mortgage rate.

It can also mean that some people take another job or start selling items they no longer need. Not an attractive prospect by any means, but could become a reality for many people hovering above or nearing the poverty line.

According to Bromwich+Smith, the number of bankruptcies in Canada rose by 13.8% in May last year compared to the previous month.

People are feeling the financial emergency and unfortunately not much can be done at the moment. It doesn’t look like the government is interested in making anyone’s life easier, other than by issuing rebate checks.

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Twitter: @steltsy94

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