be raised sooner than anticipated. Shifting from its previous language which suggested rate hikes could be expected during the second half of 2022, in its Monetary Policy Report in late-October, the central bank signalled that it is ready to increase borrowing costs as early as April. This means that the end of an era of low interest rates just around the corner, and house purchases in the second largest country in the world.
Against this backdrop, it is concerning to find that a significant number of Canadians are not sure about the impact of higher interest rates on their mortgages, according to a recent study. The survey was from comparison website RATESDOTCA and BNN Bloomberg, which analysed how Canadian borrowers are preparing for increases in interest rates. Of the 1,519 respondents, 29 per cent of them who have or are planning to take a home loan responded as “don’t known” or “not familiar” to the question which asked how rate hikes would impact their mortgages.
Nevertheless, a majority of Canadians said they prefer fixed-rate mortgages over variable, with 71 per cent of those survey saying they either have or plan to get the former, compared to 18 per the latter. Meanwhile, only one-in-four of the respondents said they are changing plans ahead of increases in interest rates, with those with variable rates likely to switch to a fixed-rate deal.
As inflation continues to run at its hottest level in nearly two decades, the BoC is signalling that it have no choice by to hike rates in the “middle quarters of 2022”. Borrowers with variable rates will be most affected as a result, since they will either see a rise in their monthly payments, or have their payments towards interest each month increase while money going toward principal would decrease.
