Another Rate Hike…When Will It Stop?

It seems like an ongoing bad dream, interest rates rise again by 0.25% in the US, meanwhile the Bank of Canada accomplished this a few weeks ago. The Canadian prime borrowing rate is sitting at 5.00%, doesn't sound so bad…does it? That's before the lenders add on their fees - a typical secured variable rate is sitting between 7.00% - 7.50%. We'll pause for a second while you think back to your first mortgage.

And you're back, ok now let's focus on how we've arrived at these rates – see below.

Source: Bank of Canada

We've gone from 0.50% to 5.00% in the span of 16 months…with the majority coming in only 10 months.

What is the end goal and when will we know we've got there? The end goal is 2.00% inflation and let's check in on how that's coming along.

Source: Bank of Canada

If you just focus on just these two charts, it appears to be working. Yet there is a very big concern looming in the background – Canadian mortgage debt. Fears of a crash in housing prices, yet they have remained resilient. People can't afford these large mortgages at these high rates for long. That's the magic of re-financing…wait, is it magic or a necessary evil…or both?

We live in a society of buy now, pay later and worry about things later. Delayed gratification? No thanks, that's boring…immediate gratification!

Back to re-financing, it's easy to extend the term back out, just to keep the monthly payment the same or similar. The part we fail to properly assess is that it will end up costing much more interest in the long-term – especially at these rates. Instead, how about looking at your budget, cutting back on some unnecessary spending (we all have fat to trim!) and pinching a few pennies. Rant over.

All we're saying is to not always take the easy road, especially when the lender makes it convenient to do so – think big picture, think about the future.

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Our quote this week comes from Mark Cuban:

"Pay off your debt first. Freedom from debt is worth more than any amount you can earn"