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Access Credit Union
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Interest rates went up again last week.
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"The Bank of Canada (BoC) is definitely looking to keep inflation under control," says Larry Davey, President and CEO of Access Credit Union, following the BoC's aggressive one-point hike to the key lending rate last week. The BoC rate now sits at 2.5 per cent. 

"The consensus was we thought we'd see about a three-quarter of a percent jump, but the Bank obviously wants to make things happen quicker, so they bumped it one percent," adds Davey.

He describes the intent behind increasing the key lending rate in order to curb inflation.

"There are now people that may be questioning if they're going to borrow monies moving forward. Because rates were low, people would borrow money, and they might even pay a little bit more for an item because rates were low on the borrowing side. With the Bank putting in an increase in rates, people will take a second look as to whether they want to make those purchases. As a result, the Bank's hope is, and what they've seen in the past, is that this will slow down the housing market which is the key," explained Davey. He added a slower housing market slows down other areas such as furniture sales and home renovations, things he says are big ticket items. "If there's a lot of demand, then inflation tends to creep up because people selling can get more. If the demand is curbed by rates going up, then that will slowly bring inflation under control."

The other factor impacting skyrocketing inflation, adds Davey, continues to be the supply chain. 

"If goods and services take longer to get here, then the ones that are here become more valuable and, they charge more for them and as a result, that bumps up inflation. If the supply chain gets back to normal, and there isn't a shortage of goods, we should see prices begin to fall."

As lending rates continue to increase, Davey says the biggest question they are fielding on the borrowing side has members wondering how it will affect their debt payments. He explains, that a payment on a $250,000 variable rate mortgage, or one that is just coming up for renewal, could go up about $30 if their financial institution is following the BoC's lead and also increasing rates by one per cent. Davey suggests confirming whether their financial institution's rates will in fact go up, and whether or not to increase their monthly payments in order to keep the loan within the original amortization period.

Still, Davey notes there are many options available, even the ability to extend the amortization period if one finds the payments are getting too tight.

"What we have seen over the course of the last three to five years is the price of homes, and the value and equity that people hold in their homes, has gone up significantly. So, it does provide some comfort that even if you did extend out the mortgage amortization, you would at least be comfortable living day-to-day because you don't want to leave yourself too short."

But what if you hold a fixed rate mortgage and remain concerned that interest rates will continue to rise?

"So, if your mortgage is locked in for four more years let's say, you can wait and see what rates start to do. You could call the institution and say that you'd like to extend your term and blend the rate, and they can tell you what that is. You're basically continuing to lock in the rates you have now for the remaining term, and then the new term you would do at the new rate," explains Davey.

On the flip side, he says there are people who are retired and have money sitting in accounts who will now see their income rise because of the higher interest rates. 

"That helps people who are maybe on a restricted or fixed income to bring in a little bit more money and help with their day-to-day living."

And what does Davey expect in terms of future interest rate hikes by the Bank of Canada?

"I think we'll see them go up a bit more. I'm not sure we'll see another one per cent hike but then again, when it was the last time and it was a half a per cent hike I wasn't sure how much more we'd see over that. The Bank of Canada does make its own decision but based on the consensus, there doesn't seem to be a feeling that there will be many more bumps."

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