
Effects of Rising Canada Mortgage Rate on Common Household
Fintech
Homeowners with outstanding mortgages are now facing a hard time with the dramatic increase in mortgage rates. In three weeks mortgage rate went up four times, from 5% to 5.80% with no indication of going down in the months ahead.
Cause of Rising Canada Mortgage Rate
Inflation is the major contributor to rising mortgage rates. The Bank of Canada must raise its benchmark interest rates to help curb soaring inflation. The bank warns that buyers who bought their homes during the pandemic that the impact of even slightly higher mortgage rates could be dramatic. Though the effect of inflation varies depending on personal circumstances, a household with variable mortgages or new homeowners is facing increase mortgage interest costs. Those with fixed mortgages will face rapidly rising mortgage rates upon renewal. People who are now paying a $1,700.00 mortgage may now be paying as much as $2,800.00.
Common effects of higher interest rates:
- Increased cost of borrowing
- Reduce disposable income and consumer spending.
- People and company will find it more expensive to borrow money from banks.
All these effects will reduce inflationary pressures and reduce spending and consumer demand will often lead to decline in inflation. Which is why Bank of Canada must increase mortgage rates to achieve the country’s target of 2% in inflation rate.
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