Inflation And Rising Mortgage Rates

Inflation may cause a hike in interest rates as early as April 2022.

It’s no secret that the cost of goods and services has been steadily rising since the start of Covid but no more evident than in this last quarter. Factors influencing prices are global supply chain issues, labour shortages, higher wages, and continued government stimulus.

Some economists believe that current rate of inflation will be short lived. The belief is that once Covid is under control and supply chains are operating at maximum efficiency again, costs will settle.

According to Statistics Canada and the Consumer Price Index (CPI), the annualized inflation rate September rose to 4.4%. For context, the Canadian government typically expects anywhere from a 1-3% increase in any given year, with a target rate of just 2%. We are seeing the highest inflation rate since 2003; an 18 year high.

The pressure on the Bank of Canada to rise interest rates sooner than expected, is increasing. Initial targets were moderate increases sometime in the later half of 2022. Adjusted estimates now suggest that we could see our first increase as early as April-July. If our economy continues to speed at this pace, the bank could increase rates .5%-.75% by 2022 year-end.

In the meantime, we are seeing a moderate surge on fixed interest rates. The bond yield has risen 89 basis points this year or .89% which is the pricing index for fixed terms. A few weeks ago, a common 5 year conventional fixed mortgage term was sitting around 2.09% and has now creeped up to 2.44%-2.54%.

What Does This Mean For You?

Rising interest rates are actually positive in many circumstances. This suggests that Canada is heading to pre-Covid times, economically speaking. Increasing rates earlier than anticipated also minimizes the chances of the Bank needing to make sharp increases in a short period of time. Slow but steady rises will allow all of us to adjust more comfortably.

Savers and investors should also expect to see greater returns within their financial portfolio.

What Should You Do?

Don’t panic. Have a proactive conversation with one of our advisors to discuss your mortgage options and especially for those of you with a variable rate mortgage or Home Equity Line of Credit.

Please CLICK HERE to schedule a free telephone consultation.

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