Hello again, MSOTM readers. I’m back from an all-too-brief summer vacation, and I’m ready to zero in on where the markets are headed. A big thanks, as always, to Dale Roberts for pinch-hitting while I was away.
Canadian mortgage holders suffer another rate hike
The Bank of Canada (BoC) delivered another widely expected 0.25% interest rate hike on Wednesday. The last time interest rates were this high was April 2001. Beyoncé was still fronting Destiny’s Child and this year’s recent college graduates weren’t even born yet.
On Wednesday, BoC governor Tiff Macklem stated, “First, monetary policy is working, but underlying inflationary pressures are proving more stubborn.” He added, “Second, we are trying to balance the risks of under- and over-tightening monetary policy.”
It appears that most traders and analysts now believe an additional quarter-point increase is coming in September, before the BoC pauses rate hikes again.
Equity markets appeared to take the news in stride on Wednesday, as the S&P/TSX Composite Index was up nearly 1%.
While savers have much to celebrate these days, borrowers are not so cheerful. The prime rate of interest that financial institutions charge their customers is now likely to go up to 7.2%. Mortgage borrowers are paying 29.9% more in interest costs than they were a year ago. For a new home buyer with a mortgage of about $676,000, every 0.25% interest rate increase means about $100 more paid in interest each month. Consequently, if rates are raised again in September, folks with new variable-rate mortgages could be paying well over $2,000 more per year than they were in June.
Car loan borrowers are feeling the pain as well. Gone are the days of 0% interest incentives. If you were to take out a seven-year $40,000 auto loan at 7.5%, you’d be looking at paying over $10,000 in interest.
Read the full article here
Read the full article here
Discussion about this post