Higher interest rates are coming. Are you ready?

Everything seems to get more expensive. Food, gas and housing prices are on the rise, while paychecks are slow to keep pace.

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Over the past few months, mortgage agent Rasha Ingratta has fielded a flood of inquiries from clients worried about the impact of rising interest rates on their mortgage payments.

“People are freaking out,” said Ingratta, who works with Mortgage Intelligence in Windsor, Ont. “They’re like, ‘Oh my God, how high is the interest rate going to go?'”

Over the past two years, Canadians have had access to cheap credit thanks to rock-bottom interest rates. However, to help curb the surge in inflation, many economists predict the Bank of Canada will begin raising its benchmark interest rate — starting with a 0.25% hike on Wednesday.

The bank rate influences the rate charged by creditors for consumer loans and mortgages.

The question now is how high will interest rates go and will indebted Canadians be able to afford it?

Rasha Ingratta, a mortgage agent at Mortgage Intelligence in Windsor, Ont., has started a private Facebook page to help advise clients worried about rising interest rates. (Darrin Di Carlo / Radio-Canada)

Ingratta advises her clients not to panic, as she believes any increase in mortgage rates will be slow and gradual. To help allay her clients’ fears, she created a private Facebook page where she offers advice.

“I go there and I can calm their nerves.”

But Doug Hoyes, a Toronto-based bankruptcy specialist, says he’s concerned that Canadians are already struggling with their finances.

“I’m absolutely worried for everyone living paycheck to paycheck.”

Hoyes notes that prices have recently spiked for basic household products like food and gas. So for some people, he said, a rise in rates — and therefore higher loan repayments — could tip the scales.

“How are you going to be able to increase what you have to pay on your debt when you also have to pay more for food, transportation and everything else?” said Hoyes, who works with law firm Hoyes, Michalos & Associates.

“You are stuck on all sides. »

Canadians are going into debt

Inflation rate in Canada reached 5.1% in Januaryits highest level since 1991.

At the same time, Canadian households accumulated more loans, adding $51.6 billion in debt in the third quarter of 2021, near-record level. Mortgages make up the lion’s share of this debt.

In addition to this, the debt to disposable income ratio is now at 177.2%. This means that Canadian households owed an average of $1.77 for every dollar of disposable income.

Many Canadians are feeling the effects. Of the 5,000 Canadians Angus Reid interviewed online in Januarya quarter said a rise in interest rates would have a major negative impact on their household finances.

Roy Graham of Shrewsbury, Ont., said he was worried about the impact of rising rates on his $150,000 home equity line of credit. (Submitted by Roy Graham)

Roy Graham of Shrewsbury, Ont., said he was worried about the impact of rising rates on his $150,000 variable rate home equity line of credit.

People with variable rate mortgages or other types of debt, such as lines of credit, will likely be the first to be affected if the Bank of Canada raises its benchmark rate. Those with fixed rate loans will experience no change until their loan term expires.

Graham, a 66-year-old retired emergency response worker who lives on a fixed income, worries about how rising debt payments will affect his already strained budget.

“Your electricity goes up, your water bills go up, your taxes go up, so it makes everything worse. It’s just – it’s like the straw that broke the camel’s back,” he said.

Graham said his biggest stressor is not knowing how much interest rates will rise.

“It’s the unknown that bothers you, like, you watch the news, you read the papers, you watch it online, and you just don’t know where it’s going to bottom out.”

‘Not so bad’

Back at Mortgage Intelligence in Windsor, Ingratta offers what could be a comforting reckoning.

She gives as an example a mortgage of $400,000 with an amortization of 25 years and a variable rate of 1.45%. With a 0.25% rate increase, monthly payments would rise to $1,636, an increase of just $47, she said.

“When I start typing these numbers into my computer and say [my clients]you pay that much, and if it’s going to go up to that much, that’s what you’re going to pay, they’ll be like, ‘Oh, okay, that’s not that bad.'”

But bankruptcy specialist Hoyes said he was concerned about possible back-to-back rate hikes.

“If it’s the start of a series of increases, that’s when it becomes a problem,” Hoyes said. “You could take a big hit to your monthly budget.”

Watch: The Bank of Canada urges Canadians to prepare for a rate hike:

Canadians are being told to prepare for higher interest rates

The Bank of Canada did not raise its key rate despite record inflation, but urged Canadians to prepare for higher interest rates over the next year. 1:54

The Bank of Canada reported last month that interest rates will have to rise to control inflation, but it is unclear at this stage how fast rates will rise and how far they will go.

CIBC Capital Markets chief economist Avery Shenfeld predicts that the Bank of Canada will raise its key rate by about 2% over the next two years.

But he points out that interest rates have fallen during the pandemic, so a 2% hike shouldn’t shock Canadians too much.

“The good news is that rates won’t be much higher at the end of the day, or significantly higher than they were before the pandemic,” Shenfeld said. “We’ve had a taste of very, very low interest rates and I think the economy just doesn’t need it anymore.”

Leslie M. Gill