Bank of Canada's interest rate spike: What does it means for homeowners with mortgages?

The Bank of Canada hiked interest rates twice this summer and the increases come at a time when many Canadians are struggling to pay off debt.

First, in July, the bank announced a raise from 0.5 to 0.75 per cent and then, at the beginning of September, hiked rates again to a full one percentage point. A report by TransUnion last year estimated that if interest rates were raised by one percentage point, 700,000 Canadian households would face serious financial ramifications.

Those most affected by the interest increases are those paying back debt — such as Canadians with mortgages. According to Scott Hannah, the president and CEO of the Credit Counselling Society of British Columbia, new homeowners who have just taken out a large mortgage are the most vulnerable to the changes.

His recommendation is to try to pay off debts as quickly as possible to avoid future interest hikes or, in the case where that is not possible, to try to switch to a fixed-rate mortgage to mitigate against economic ups-and-downs.

After the latest hike, the Forum Poll found that a third of Canadians fear the proposed change will negatively impact their finances — especially those in British Columbia, Alberta and Ontario.

The bank’s announcement has been met with vehement criticism, especially as the Canadian dollar continued to slip, and some experts say the bank may well pause the interest rate hikes for now. Others, however, are adamant that the rises will continue and that it is up to individual Canadians to do the best they can to safeguard their finances.

The Bank of Canada is expected to finalize its plans in the coming weeks but, even if the most recent spike is held off, that will not necessarily mean an end to raising rates for the year, experts say.