'A beautiful soul': Funeral held for baby boy killed in wrong-way crash on Highway 401
A funeral was held on Wednesday for a three-month-old boy who died after being involved in a wrong-way crash on Highway 401 in Whitby last week.
Economists are predicting Canadians might see another interest rate hike next week and say homeowners who are already financially vulnerable will have a tougher time making mortgage payments.
Robert Hogue, assistant chief economist at the Royal Bank of Canada, told CTVNews.ca on Thursday that he is anticipating a hike of 25 basis points to be announced by the Bank of Canada on July 12.
Moshe Lander, senior lecturer in economics at Concordia University in Montreal, told CTVNews.ca on Thursday another increase is “not good news for borrowers of any kind,” from those in the housing market to those with personal debt from student loans, for example.
The increase, Lander said, will mean some homeowners will be unable to finance their mortgage.
“Interest rates have gone up so much, so fast,” he said. “But our incomes have not been rising in pace. So, more and more disposable income will have to go towards paying interest on our debt, let alone the actual debt itself.”
The bank has raised its key interest rate eight times in less than a year, and this would be the third increase of 2023, making borrowing money more expensive.
A rate hike of 25 basis points would bring the overnight rate to five per cent and the prime rate to 7.2 per cent, the highest rates in approximately 30 years, said Lander.
If the central bank announces a 25-basis-point increase, homeowners will pay more on their mortgage. Hogue said homeowners with a variable-rate mortgage will see a significant and instant increase.
According to Ratehub.ca’s mortgage payment calculator, a homeowner who has put a 10 per cent down payment on a house that costs about $729,000, with a five-year variable rate of 5.80 per cent over 25 years will pay $100 more per month in mortgage payments. The average price of a home in Canada in May 2023 was $729,044.
On the contrary, those with a fixed-rate mortgage will see an increase when their term expires.
Since not everyone’s mortgage terms expire at the same time, Hogue predicts this rate increase “can have a little bit longer lag in terms of that monetary policy transmission to households.”
James Laird, co-CEO of Ratehub.ca, advised people shopping for a home to get “pre-approval to hold today's fixed rates for up to 120 days,” according to an email sent to CTVNews.ca on Thursday.
“It’s best to plan for a 25-basis-point interest rate hike and be pleased if they hold,” read the email.
Laird, who is also president of CanWise mortgage lender, said current homeowners with a mortgage up for renewal within the next year should seek out rates with a new lender.
This way, if rates jump again, owners can try breaking their existing mortgage and “switch to that new lender before your rate hold expires to lock in the lower rate.”
While the increase is still not confirmed, Lander said the adjustment comes as the Bank of Canada aims to balance economic growth with pressure from inflation.
In last month’s press release, the central bank wrote, “overall, excess demand in the economy looks to be more persistent than anticipated.”
Hogue explained hiking interest rates is meant to “cool down” demands from the markets, which can stem from both households and businesses, and balance it with production capacity.
“When you have more demand than your ability to produce, it puts upward pressure on prices, which is basically what inflation is,” he said.
Statistics Canada reported the annual inflation rate fell to 3.4 per cent in May from 4.4 per cent in April, largely due to lower gasoline prices compared to a year ago.
That's the lowest inflation has been since June 2021.
Ultimately, it is in the central bank’s policy mandate to maintain inflation at or close to two per cent, and hiking interest rates is a way to lower production demands, reduce inflation and achieve that goal, said Hogue.
Lander said inflation is “scary, it’s confusing and can really destabilize an economy quickly.”
That’s why the increase is not to “punish” homeowners, “it's purely to make sure that that terrible, terrible (inflation) genie does not get out of the bottle again,” Lander said.
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