In response to the hike in interest rates initiated by the Bank of Canada, the big banks have also raised their prime rates.
RBC was the first bank to follow the country’s central financial institution with the others following close behind. As chief economist at RBC Global Asset Management, Eric Lascelles revealed to the CBC News Network, “It’s going to raise borrowing costs a little bit for everyone.”
The statement is a clear indication that Canadians are likely to be affected by the newest move by the Bank of Canada with interest rates now standing at 3.2% from 2.95%. The loonie has also experienced a surge with a display of the highest rate in 2 years.
Given that the bank’s last rate hike was in July 2017, let’s take a look at the impact on consumers.
Impact on Lines of Credit and Home Equity Lines
Laura Cooper is an economist at RBC. In her report that she released on September 1st, she had talked about how Canadians had raised their consumer credit balances by $10 billion to $12 billion in the past 12 months.
She said, “Borrowing from banks accounted for the bulk of the rise led by personal lines of credit, notably home equity lines of credit.” This factor accounted for more than 50% of the surge in the second quarter of 2017 which has been the largest since the year 2011.
The new interest rates are likely to affect Canadians with their lines of credit and variable rate mortgages becoming more expensive in response to the rising prime rates set by banks.
Impact on Credit Cards
Consumers owning credit cards with fixed interest rates need not be concerned. However, consumers working with variable interest credit cards may want to prepare to pay higher interest on any outstanding balances they carry.
Impact on Mortgages
Consumers that have adjustable-rate mortgages or variable-rate mortgages may have to pay more interest given that various banking and lending institutions are raising their mortgage rates. However, Canadians that have fixed-rate mortgages may not feel the impact until the time they must renew their mortgages when the fixed term is up.
Impact on Student Loans
Given that student loans can also have fixed or variable interest rates, a consumer paying off a variable-rate student loan may have to pay higher interest rates right away. However, consumers with fixed-rate interest student loans need not be concerned until the time the loan is up for renewal.
Future Impact on Businesses and Consumers
In her report on growing credit trends in the country, Cooper stressed that higher interest rates are likely to impact the heavy borrowing in the country with consumers cutting back on the loans they’re taking.