While people continue to pay more for essentials such as food and gasoline, some homeowners will again be paying more for mortgage payments.
After increasing its benchmark interest rate by a full percentage point, the Bank of Canada’s key interest rate now sits at 2.5 per cent.
According to the latest MNP Consumer Debt Index*, nearly seven in ten people in Alberta say they are already feeling the effects of interest rate increases and one-third are cutting back on essentials such as food, utilities and housing.
“It’s really important to sit and take a look at our budget,” Donna Carson, a Licensed Insolvency Trustee with MNP, said.
“When was the last time we did it? And it’s probably not looking the same with the rising interest and rising costs of everything.”
Nichola Tremblay and her husband own a home in St. Albert. She is a full-time nurse, her husband works three jobs and they have three kids.
READ MORE: Bank of Canada hikes key interest rate by full percentage point in surprise move
They have a variable rate mortgage and Tremblay said their payments will likely increase.
“It was like ‘oh here we go. Something else that’s going to increase’. Where am I going to pull this from?,” Tremblay said.
“City taxes have gone up, utilities have gone up, obviously our wages are not going up. There are things we have to cut back on as a family of five to accommodate keeping a roof over our head.”
Tara Borle, lead mortgage broker with Mortgage Architects, said her phone was ringing off the hook Wednesday following the Bank of Canada’s announcement.
“They (clients) want reassure that ‘OK what does this mean with my rate increase? How much are my payments going to go up? Should I lock in?,” Borle said.
As for what this means for her clients, Borle said people with variable rates will see their payments increase.
“If you’re on a variable and your mortgage is for about $100,000, your payment is going to be about $50 higher (per month). So you’re going to see an increase in your monthly payment,” she said.
READ MORE: 1 in 4 homeowners say rising mortgage rates could push them to sell: survey
Borle said she is still advising most of her clients to stick with their variable rates, as fixed rates are still higher.
“It’s a big jump to lock in at that higher rate.”
The central bank’s increase to the interest rate is in an effort to cool the hot housing market and tamper decades-high inflation, which hovered around 7.1 per cent in Alberta last month.
Experts said people on a fixed rate mortgage won’t see an increase to their monthly payments until it’s time to renew.
“As an industry, we are very focused on ensuring that changes in interest rates and the cost of renewals of mortgages isn’t going to put Canadians into difficult situations,” Canadian Alternative Mortgage Lenders Association president Dean Koeller said. “Overall we’re going to see a decrease in the demand for homes as the cost of homes continues to escalate because of the rising interest rates.”
The MNP Consumer Index also noted that 31 per cent of Albertans said they are not financially prepared to deal with an interest rate increase of one percentage point or more, which is higher than any other province.
“If you’re barely making minimum payments, now is the time to absolutely reach out for help,” Taz Rajan with Bromwich told Global News. “The other thing I’m going to say is to not take on additional debt if there’s any way you can avoid it; this is not a time to go getting new credit cards.”
*(sample of 2,000 from June 6-9 2022. Poll is accurate to within ±2.5 percentage points, 19 times out of 20)
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