Residents with variable mortgages will no doubt be the hardest hit as a result of the latest key lending rate increase by the Bank of Canada.
And some believe it may lead to some residents having to sell their homes to pay off growing debt.
‘They have to pay more now for mortgages or home equity lines of credit, any types of those debts that are variable rates,” said Charlie Peet, a financial wellness advocate with 4 Pillars Consulting in Kelowna.
“So those costs go up, but income is not going up or hasn’t gone up.”
Peet helps people budget and restructure credit debt — something those with variable mortgage rates may fall deeper into, after the Bank of Canada announced it’s raising its overnight interest rate by a full percentage point to 2.5 per cent.
The Bank of Canada took the measure as it tries to fight out-of-control inflation.
“What we see going to happen now is a migration and a greater use of unsecured credit facilities, lines of credit, credit cards, as people grapple, the average Canadian grapples with how to pay for all the new increases in the expenses. And they’re going to start using credit,” Peet told Global News.
That trend, according to Peet, will lead to what he calls a tsunami of payment defaults.
“Probably approaching what we experienced in ’08 and ’09, he said. “It’s a little bit different now here in the Okanagan, and most places, because of the massive increases in home values.
“We don’t expect to see the foreclosure issue like before because there’s too much equity. We see people having to face the fact that you might actually have to sell their home to pay off their debts.”
Peet expects a lot more people needing debt restructuring services in the coming months.
“We fully expect and we already started seeing an increase in our inquiries,” he said.
“The phones are ringing more, so now we’re getting more emails of people saying ‘Hey, look, I can no longer deal with this. I spoke to you a year ago or sometimes a while ago, in the last six months,’ and they say they just can’t deal with it anymore.”
The latest Bank of Canada hike is the fourth benchmark interest rate increase since March, and the biggest one-time increase in more than 20 years.
“I just think it’s going to affect a lot of people and everybody will have to re-evaluate what they are doing, including myself,” said Kelowna resident Edi Cote.
“If you have an open mortgage, you will have to think about how that will affect your payments. It’s going to help inflation, supposedly, so time will tell.”
Kelowna resident Len Brook said the interest rate hike “will hurt people who own houses, but it’s going to help savers.”
Those concerned about the latest hike urged to curb spending.
“People have to spend wisely and stop discretionary spending,” said Peet, “or try to cut down and try to pay more on their unsecured debts of the high-interest types.”
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