Whatever goes up, can also wait.

Homeowners jubilate as Bank Of Canada holds interest rate

The Bank of Canada (BoC) announced on Wednesday that it will keep its benchmark interest rate at 5% for the time being, despite the rising inflation and slowing economic growth. This decision has been welcomed by many homeowners who have been struggling with the high cost of borrowing and the uncertain housing market.

The BoC said that it will continue its policy of quantitative tightening, which means reducing the amount of money it injects into the economy through bond purchases. The bank also warned that the path to avoiding a recession in Canada is “narrower” than before and that it expects interest rates to increase gradually in the future.

The impact of interest rates on homeowners depends on the type of mortgage they have. Those with fixed-rate mortgages are unlikely to feel the effects of an interest rate hike soon after it’s implemented, especially if their agreement was signed six to 12 months ago and extends for several years. According to a consumer report published by Mortgage Professionals Canada last year, 77 per cent of mortgages for homes purchased in 2020 were fixed-rate.

However, those with variable-rate mortgages and home equity lines of credit (HELOCs) are more sensitive to interest rate changes, as their monthly payments will increase as the rates go up. A one-per-cent hike in rates will add hundreds of dollars to mortgage payments each month. This could affect the affordability and financial stability of some homeowners, especially those who borrowed more than they could comfortably afford.

The BoC’s decision to hold the interest rate at 5% gives some relief to homeowners who are facing higher costs of living and lower economic growth. However, this relief may be temporary, as the bank has signalled that interest rates will need to increase in the near future to keep inflation under control.

Homeowners should be prepared for the possibility of higher mortgage payments and plan their finances accordingly. For now, homeowners are happy to share a toast of celebration!

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