Canadians are stressed by rising interest rates. Here’s what you can do – National | Globalnews.ca

The Bank of Canada’s aggressive interest rate hikes aren’t just on the minds of economists and homeowners, as a recent survey shows that the uncertainty surrounding the rate hike is pushing Canadians’ financial anxiety to new heights.

But experts say there are steps you can take to ease the burden as debt becomes more expensive and mortgage costs rise.

The central bank on Wednesday raised its policy rate by 50 basis points, another oversized step and the sixth straight hike this year, marking one of the fastest rate-tightening cycles in its history.

The bank is raising interest rates to raise the cost of borrowing and dampen spending demand in a bid to slow the economy and calm inflation, which remains well above its 2% target.

Bank of Canada Governor Tiff Macklem conceded at a news conference on Wednesday that higher interest rates are contributing to the burden Canadians face from high inflation.

Although he hinted that the end of rate hikes could be on the horizon, it was clear that rates are not yet where they need to be – the risk of not raising them enough, he said. he says, might be a more painful option in the long run. Course.

“We know it is difficult for many Canadians to adjust to higher rates. We are monitoring this impact very closely. But unfortunately there is no easy way to restore price stability,” Macklem said.

“If we don’t do enough, Canadians will continue to struggle with higher inflation.

Concern over rising rates has reached new heights in MNP’s regular confidence survey of the financial situation of Canadians.

The Debt Insolvency Society survey, conducted in early September by Ipsos, showed earlier this week that six in 10 Canadians (59%) are worried about the impact of rising interest rates on their finances. That’s up one percentage point from last quarter’s survey.

MNP President Grant Bazian told Global News that this was the highest level of anxiety over rates since the survey began in 2017, although he noted that it was not. was not necessarily a surprise, since rates had been largely low since its existence.

But he also says that for many young Canadians entering a cycle of rising rates for the first time as they try to establish homes and careers, this concern is brand new.

“They don’t know how it’s going to affect their lifestyle, their spending habits, what they can afford for the future and their savings. I think a lot of anxiety and the unknown is the key issue here,” says Bazian.

He adds that younger Canadians are most likely to make up two groups that have expressed the most concern about rising rates: renters and low-income households.

The survey showed that 59% of renters fear financial hardship as interest rates rise, compared to 41% of landlords.

About 60% of Canadians with household incomes below $40,000 say they are concerned about paying off their debt, compared to 51-52% of those earning more.

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Rising interest rates make debts such as credit cards and certain loans and mortgage products more expensive to carry.

Although tenants may not need to worry about a mortgage, Bazian says the sentiment survey reflects a lack of security and control over their own finances. Households that rent can be subject to sudden increases in payments if they have to move or if they don’t have rent control, he notes.

“I think it’s just the anxiety of not being able to control what your rent will be.”

As the rental market booms, the costs of getting a mortgage in Canada are also rising.

Statistics Canada’s mortgage interest cost index rose 8.3% in September, marking the third straight month the barometer has climbed year-over-year.

While fixed-rate mortgage holders feel the pain of higher rates when they renew, variable-rate products see payments rise immediately along with Bank of Canada rates.

An analysis by comparator site rates.ca showed that variable-rate products would pay $28 more per month per $100,000 of their mortgage for every 50 basis point step, as Canadians saw on Wednesday.

A homeowner who renews their mortgage today will see an average increase of 18% in their monthly payments, according to the site.

Victor Tran, mortgage broker and expert at rates.ca, told Global News that while most of his variable rate clients have seen these increases in their payments coming, few expected such a large increase over the past eight years. last months.

For those who feel “exploited” by escalating payments, they will have no choice but to lock in at a fixed rate, he says.

“There will potentially be another rate hike in December, possibly early next year – we don’t know yet. But if you feel like you’ve maxed out the budget, you might want to consider locking in a fixed rate just for long-term certainty,” he says.

For those who can handle a little more short-term pain, Tran likes the flexibility offered by variable rates. The penalty for breaking a variable mortgage is always three months interest, while fixed rates can have much more expensive fees associated with exiting early.

He also notes that, historically, the average variable-rate mortgage ends up being cheaper than its fixed-rate counterparts.

“As long as you’re comfortable with a bit of risk, variable rate might still be attractive to some people,” Tran says.

He says he’s been getting more calls and emails than usual from customers, especially since September’s rate hike, but he estimates three-quarters are sticking to their variable rates even when the interest rates rise.

Bazian fears Canadians struggling to make ends meet are turning to more debt to manage the twin pressures of inflation and higher interest rates.

“That’s where the cycle comes in, the snowball effect, because if they go into more debt, that debt will usually have more interest because you’re probably going to put it on credit cards or lines credit,” he said.

“If these interest rates go up, they will be in a more difficult situation. And it can snowball.

Whether you’re trying to fit bloated mortgage costs into your household finances or looking for ways to earn a few extra dollars each month, Bazian says a budget is always the right place to start.

“A lot of people don’t know what they’re spending their money on. They usually know how much money they make, don’t they, because that check comes in once or twice a month. But what are they really spending on? he says.

Breaking down annual expenses such as car insurance and even vacation purchases into monthly installments can make regular costs more digestible, Bazian says, and can reveal where to cut back or switch to a supplier or grocery store. cheaper.

Nearly a year after inflation and interest rates soared, he notes that many Canadians may have already cut whatever they could.

If debt costs get out of control, he recommends talking to insolvency trustees just to get an idea of ​​the options available to reduce or eliminate debt.

“The options may not be acceptable, but at least people know they can do something…when they don’t know the options, they become more anxious. Talk to a debt professional and at least they will know what is going to happen.

– with files from Anne Gaviola of Global News