The first question on the minds of Canadians is just how high rates are going to go, something Central bank governor Tiff Macklem addressed last week when he testified before the House of Commons Standing Committee on Finance.
One eventual benefit of higher interest rates is that borrowers will have a more realistic monthly payment for their debts. Although the mortgage stress test qualified a borrower based on a higher interest rate, borrowers have become accustomed to artificially low monthly payments with little interest.
Besides borrowing, higher rates have an impact on investing, pensions, and retirement. 2022 has seen fixed-income investors get burned or cash in depending on their product of choice. The FTSE Canada Universe Bond Index is down 9.6 per cent year-to-date as of April 30. As interest rates rise, bonds fall, and when rates rise quickly, bonds fall quickly. The reason is newly issued bonds at higher rates are more attractive, so previously issued bonds with lower rates will fall in value.