How the Bank of Canada’s interest rate hike to 5% will impact Canadian households

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For businesses and households, the latest interest rate increase means an increase to the prime rate.

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The Canadian economy grew at 3.1 per cent in the first quarter of 2023, fuelled by strong growth in household spending on services. Healthy economic growth goes hand-in-hand with job creation, leading to tighter labour markets where job openings are plentiful but available workers are scarce. While the mortgage interest rates have been a significant contributor to the rise in the cost of living, grocery prices have remained high, rising by nine per cent year-over-year this past May.

According to a recent Canada Mortgage and Housing Corporation report, the number of mortgages in arrears has remained low despite more households being worried about making mortgage payments on time. The relatively low number of mortgages in arrears is reflective of the financial stability and resiliency of Canadian households.One way Canadians have been coping with higher mortgage rates is with choosing shorter-term fixed-rate mortgages.

Over the past year, amortization periods greater than 25 years have become increasingly common. In the fourth quarter of 2022, for example, 60 per cent of mortgages were amortized over more than 25 years, compared to 50 per cent three years prior.

 

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How the Bank of Canada’s interest rate hike to 5% will impact Canadian householdsFor businesses and households, the latest interest rate increase means an increase to the prime rate.
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