Will Consumer Habits React to Looming Bank of Canada Interest Rate Increases in Time?

NEW WESTMINSTER, BC, May 31, 2022 /CNW/ – For Canadians who are already exasperated struggling to make ends meet with the constantly increasing cost of living, the Bank of Canada’s announcement on June 1 could make a challenging situation even worse. It’s widely anticipated that the Bank of Canada will increase their target overnight rate by at least 50 basis points. For consumers with variable rate loans – especially high balance home equity lines of credit (HELOCs) – this squeeze could signal the end of any small luxuries still left in their budgets.

“Among historically low borrowing rates, the last decade has given Canadians more experience with rate decreases than increases, so another 50-basis point jump will be a wake-up call for anyone who didn’t hear the alarm sound the first time,” explains Mark Kalinowski, financial educator with the non-profit Credit Counselling Society. “Rates were at historic lows for two years to help us get through the pandemic. Unfortunately, this reinforced our reliance on credit to make ends meet, which is now causing many Canadians a lot of stress.”

Absorbing higher debt payments due to interest rate increases, impacts consumers where it hurts most. According to a recent Equifax Canada report, credit card spending is now higher than ever and payments decreased by 2.9 per cent compared to the last quarter of 2020.

Despite ongoing reports of feeling worried or anxious about their financial situation, Canadians aren’t taking enough steps to turn their situation around. According to TransUnion Canada’s Report highlighting Q4 2021 spending, consumers returned to pre-pandemic habits at the end of last year. That only served to carry Canadians into the economic storm that started 2022 off with a bang.

“This is concerning,” states Credit Counselling Society program manager, Mason Cox. “Countless consumers pay their high interest credit cards, as well as other debts, off with their HELOC each month. While it might feel good that you paid your credit cards off, the clear conscience can not only lead to more spending, but also to debt that has the potential to jeopardize your home ownership if left unchecked.”

Within a relatively short amount of time, an interest only payment on a $150,000 HELOC balance could result in financial hardship for a lot of families, along with potential longer-term consequences for leveraging their home:

Regardless of how much rates change on June 1, the growing cumulative effect of rate hikes could result in reduced spending. “An increase of $125 each month is money that consumers must find in their budgets. We help our clients with this every day,” explains Cox. “And we would encourage more people to reach out for our help before their situation becomes dire and they risk losing their home.”

For Further Information – Media Inquiries
The Credit Counselling Society has spokespeople from across Canada available for interviews to discuss topics like this in more detail as well as any other relevant financial topics. Please feel free to reach out to John Lock, Director of Marketing, Direct: 604.636.0277, Email.