Rise of Interest Rates

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July 25, 2010

Uphill climb by James Jordan

The Bank of Canada has just raised the key lending rate for the second time in a very short period of time! After no increases for months, raises for two months in a row may be a little shocking for borrowers. The bank, however, believes that our economy is healthy enough to survive the new level of the benchmark rate, 0.75 percent, with no significant difficulties.

Not only did the benchmark rate go up, the prime rate was raised slightly as well, from 2.5 to 2.75 percent. That means an increase in the cost of variable mortgages tied to the prime rate, as well an increase in consumer and car loans. Sales are likely going to fall in the near future, in part due to these rises. The central bank, too, predicted the Canadian economic growth to slow down a little in 2011.

We will have to wait and see how this all turns out – unfortunately many borrowers could have been hit by this decision.