Rising Rates Can Be Big Hit in the Pocketbook

By Christianson, David | Winnipeg Free Press, June 28, 2013 | Go to article overview

Rising Rates Can Be Big Hit in the Pocketbook


Christianson, David, Winnipeg Free Press


Interest rates are rising. At the same moment most people will tell you they don't see interest rates rising any time in the near future, rates have actually been on the rise since early May.

What does this mean to you?

And what does it mean for the broader economy and all of the borrowers the minister of finance and the former governor of the Bank of Canada have been warning us about for the last two years?

First, I should explain what I mean by rate rising, since the last interest rate announcement by the Bank of Canada said they would keep interest rates where they are, with no increase in sight.

That announcement refers to the Bank of Canada's target rate for overnight lending between financial institutions, which influences rates throughout the economy.

What affects you and other consumers, though, are mortgage and lending rates set by the banks, credit unions and finance companies.

In the case of mortgage rates, the banks access funds to loan in the bond market, which is governed by supply, demand and expectations about the future.

It is in this bond market where rates have risen quite steeply in the last six weeks, the mathematical result of a decline in bond prices.

U.S. government Treasury bond rates increased from a low of 1.6 per cent to recently hit 2.4 per cent. That's a big jump.

If you've been mortgage-shopping lately, you've seen an increase in Canadian mortgage rates, from five-year rates of 2.89 per cent to posted rates of 3.29 per cent.

Anyone shopping for a house would be wise to lock in their mortgage rate now, while they look. This is always good advice, but more critical now.

Consumers with variable-rate loans should recheck their ability to handle higher interest rates and higher payments, or consider locking in a rate now, which would unfortunately be higher than today's variable rate. …

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