Managing personal finances just got more difficult, writes Peter Watson.
Another significant interest rate hike was just announced by the Bank of Canada. The most recent rate increase was three quarters of one per cent.
The Bank of Canada is determined to reduce the annual inflation rate to the target of two per cent. This is the fifth consecutive rate increase and the BOC said further increases are anticipated.
This rate increase is significant for two reasons. First, interest rate on loans will increase. The timing of your loan interest rate increase depends on the details of your loan.
If you have locked-in an interest rate for the length of your mortgage, then your current rate will continue. Some homeowners have a variable rate mortgage which means the interest rate can be adjusted upwards.
Other loans could have immediate interest rate increases.
The second consideration of higher interest rate is many Canadians are struggling to make ends meet because of the current rate of inflation. Most things cost more, and some things cost a lot more.
Making ends meet can be very difficult. Add in higher cost of borrowing many people may face significant financial hardship.
Increasing interest rates to control inflation is part of the normal economic cycle. That, in no way, makes it easier for individuals to cope with higher loan payments.
Our suggestion is to spend time looking at your personal finances. What expenses are necessary and what expenses can be eliminated or reduced.
Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Only investment-related products and services are offered through Watson Securities of ACPI. Peter Watson provides wealth management services through Watson Investments. He can be reached at www.watsoninvestments.com
