This is how the new rate hike affects your portfolio

This is how the new rate hike affects your portfolio

The Bank of Canada (BoC) hits hard by raising the benchmark rate by another 0.50%. Your mortgage, line of credit, and other loan payments will increase.

• Read also: 7th consecutive increase in the key rate

• Read also: What to do if you need to renew your mortgage

• Read also: Mortgages: thousands of people on the brink


Hundreds of thousands of Quebec households will have difficult decisions to make in the coming months.  Fatiha Sathi and her husband have already given up a trip because they want to help her son.

Photo Francis Halin

Hundreds of thousands of Quebec households will have difficult decisions to make in the coming months. Fatiha Sathi and her husband have already given up a trip because they want to help her son.

“We canceled the electric car and a trip because the rate is too high. Now we calculate everything,” says Fatiha Sathi, 62, who says she is worried about the younger generation. Her son, like so many Quebecers, was hit hard by the hike.

“We have to cut back, my husband and I, to help my son, so that he doesn’t get into more debt,” she says.

a 7me get up immediately

This seventh consecutive increase since the beginning of this year will hit the wallets of Quebecers on several fronts.

For most banks it is in less than a month, in January, that the increase will become effective.

The central bank’s policy rate affects all other interest rates, including mortgages, lines of credit, car loans, and even credit cards.

mortgages

For example, for a house purchased for $400,000 with a down payment of $50,000, the monthly payment before the Bank of Canada announcement was $2,216.

But the next payment will be $2,324, an increase of $108 per month.

“And beware of variable-rate mortgages and fixed payments,” warns Guillaume Duquette, a fixed-income and investment analyst at Professionals’ Financial. After numerous key rate hikes, many are only paying interest on their loans, he notes. For these borrowers, a phone call to their bank is to see their options.

Lines and credit cards

Lines of credit are often at variable rates. The same principle then applies as with an adjustable rate mortgage.

The increase in the Bank of Canada directly affects your monthly payment.

  • Listen to Francis Gosselin’s economic column on the microphone of every day in waves of :

auto loans

Auto loans are no exception. Today’s increase will have a direct impact on these loans, which have been on the rise since the beginning of the year.

At Hyundai Canada, for example, interest rates increased from an average of 2.99% in January 2022 to 5.99% in November 2022, a three percentage point jump in less than a year. And keep going up with today’s announcement.

For example, a vehicle purchased for $34,000 with a down payment of $4,000 would cost you $682 per month with a 7% loan. After the walk on Wednesday, it will cost you $690 each month.

it’s time to plan

Some credit cards also have variable rates. This is the case with the TD Emerald Visa Card, which offers a variable APR equal to TD Prime + 5.50%, up to TD Prime + 13.75%, depending on your credit rating.

The time has never been better for financial planning, says Guillaume Duquette. “You have to look at where the basket is perforated and then budget,” he says.

“You have to take the time to look to the future and ask yourself: can my mortgage still go up? What will happen if my car loan goes from $690 to $730 per month? Planning is about planning [et à] counter the blows. »

Do I breathe in sight?

after a 7me increase in a year, an unprecedented event since 2008, can consumers finally hope for a respite?

“Hopefully we could have a breather for a few months, but it’s very risky to comment on that,” Guillaume Duquette said.

The Bank of Canada will publish its next forecast for the economy and inflation on January 25, 2023.

– With the collaboration of Francis Halin

♦ The top seven chartered Canadian banks (CIBC, RBC, National Bank, BMO, Scotia, TD and Laurentian) announced an increase in their prime rate this afternoon. The Mouvement Desjardins did the same, at the beginning of the evening.

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How much will it cost you?

The newspaper made a typical calculation illustrating the impact of the increase in the key Bank of Canada interest rate on three types of loans. This is what it gives.

Mortgage

  • Property acquired for $400,000
  • Down payment: $50,000
  • Mortgage payable: $350,000
  • Rate before December 6: 5.5%
  • Paid before: $2216/month
  • Increased rate: 6.0%
  • Next payment: $2324/month

► $108/month increase

car loan

  • Purchase Price: $34,000
  • Down payment: $4,000
  • Loan to repay: $30,000
  • Duration: 60 months
  • Rate before: 7%
  • Monthly payment: $682
  • Rate after increase: 7.5%

► Monthly payment after increase: $690

personal line of credit

  • $10,000 balance
  • Rate before increase: 8%
  • Monthly interest: $67
  • Rate after increase: 8.5%
  • Monthly interest: $71

EXAMPLE OF EVOLUTION OF A MONTHLY PAYMENT OF A LOAN OF $300,000 ACCORDING TO INTEREST RATES

  • 1.5% | $1199.15
  • 3% | $1419.74
  • 4.5% | $1660.42
  • 5% | $1744.81


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