Understand rising inflation and interest rates

The past several months, inflation has increased across the country. In March 2022, we saw annual inflation in Canada rise to 6.7%, which is the highest it has been in 31 years. Inflation can be measured by a decrease in purchasing power and an increase in the price of goods and services. When this happens, you may notice things becoming more expensive, which can make it difficult to plan out future financial decisions. For example, consider if the cost of the average Canadian’s monthly basket of goods and services increased from $100 one year to $120 the next year. That extra $20 for the same basket of goods and services reflects inflation.

If inflation is high, it means that people and businesses are spending a lot, and the economy is growing too quickly. In these cases, the Bank of Canada (BOC) may raise the policy interest rate (sometimes called the overnight rate), which is the rate the BOC uses to lend money to other banks. Generally, when the policy rate is increased, banking institutions will also raise their interest rates on loans and mortgages. With higher interest rates, people will not want to take out as many loans and may reduce their spending, which in turn should slow down the economy and inflation rates.

Get a pre-approved mortgage

The first step in the home-buying process is getting a pre-approved mortgage. Getting pre-approved will give you a good idea of what you can afford, how much you’ll be paying for your mortgage monthly, and how much you’ll be paying in interest. It also allows you to have confidence in your purchasing power. Once you’ve determined your interest rate, this is locked-in for a specified period of time. At CUA, this is 90 days, which means that even if interest rates rise during this period, your rate stays the same. A pre-approved mortgage is always a good idea, especially when you anticipate interest rates may increase. You can begin your pre-approval process by scheduling a meeting with a lender or financial advisor, who will ask you to provide confirmation of your income, a credit report and proof of assets.

Find the right mortgage product for you

Accounting for changing interest rates is key when deciding which mortgage option suits your financial needs. You might consider a fixed rate mortgage when rates are lower, which is locked-in and does not change for the term of the loan. If you opt for a variable rate mortgage, where the interest rate can fluctuate during the length of the term, you can budget for future rate increases. Accounting for possible rate increases while planning your budget will help you stay on track financially, so you’re prepared even if the cost of living gets more expensive. Not sure which mortgage option is right for you? CUA has several mortgage options to fit your needs, including our No Down Payment Mortgage, which will bring you one step closer to home ownership without having to save up the entire down payment. If you want more information about our rates, you can also schedule a meeting with a member of the CUA team.