Interest rates rise. What does it mean to you?

On March 2nd 2022 the bank of Canada increased interest rates by 0.25%. This is the first interest rate hike since before covid.

The Bank of Canada has suggested that interest rates will be raised several times this year, but I don’t suspect we’re going to see drastic increases.

What does a 0.25% increase in your mortgage rates mean? Not a lot. It will essentially cost you an additional $12 per month for every $100,000 on your mortgage. A $500,000 mortgage will only see a $60/m increase. That’s not usually a make or break amount of money when you’re looking at an investment property, but it will affect your cashflow a little bit.

In the last few years we’ve seen massive inflation due to the government printing large quantities of money. It’s hard to get an exact number on the amount of money that’s been printed in the last two years, but most economists put it somewhere in the $500 billion range.

Unfortunately when you print a lot of money, it quickly erodes the value of the dollars that are already in circulation. This causes inflation, which causes the cost of things to increase, as we’ve seen with fuel, groceries, housing and other assets.

The best way to combat excessive inflation is to increase interest rates. Raising interest rates too quickly can cause a recession, but if they aren’t raised fast enough, we’ll continue to see our cost of living increase.

The government and Bank of Canada will have to do a balancing act for the coming years to reduce inflation, without increasing interest rates too fast which could cause a significant recession, which is what they were trying to avoid by printing money in the first place.

If you’ve been sitting on the fence about purchasing an investment property, it might be wise to act sooner rather than later. Even though one small increase doesn’t make or break most deals, multiple hikes that amount to 0.75%-1.0% will have more drastic effects.

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