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When Will Interest Rates Go Up?



WHAT GOES DOWN...


Interest rates are at historic lows, so at some point they will need to come back up.


When the pandemic started, the Bank of Canada cut its key interest rate to 0.25% and began massive asset purchases to support the economy. Eventually these policies need to be reversed.


TEMP-FLATION


Some goods and services now cost a lot more because of increased demand, and supply chain issues, caused by COVID. This temporary inflation will likely subside as the economy and businesses re-open.


The Bank of Canada is patiently waiting for prices to settle to a sustainable 2% increase before raising interest rates.


WE'RE DOING GREAT


The economy is doing better than we thought in the 2nd and 3rd waves, and vaccination campaigns have been super successful.


That's why interest rates could rise earlier than expected, possibly in mid-2022. Governor Tiff Macklem made this announcement yesterday.


NO SUDDEN MOVES


At the start of the pandemic, rates dropped far and fast only because emergency measures were needed. But don't expect the reverse to be true - the climb back up should be slow and steady. The Bank of Canada is driving a bus, not a Ferrari.


WANT PROOF?


Every 8 weeks the Bank of Canada decides if it's going to change interest rates. But in the past 10 years, it's only actually done this 11 times.


And 3 of those times were in March 2020, to drop rates because of the pandemic.


EXHIBIT A:


DID YOU NOTICE?


When rates do change, it's typically only by 0.25%.


That means:


If you owe $500,000 on a variable rate mortgage,

your payment might go up by $50/month.


If you owe $20,000 on an interest-only line of credit,

your payment might go up by $5/month.


REMEMBER


Your bank or mortgage lender decides its own prime interest rate, which determines your borrowing payments.


However, almost all lenders use the same prime rate, and it almost always moves up/down with a Bank of Canada decision.


For more info, check out my Instagram story highlights on the BoC.







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