The Bank of Canada‘s aggressive stance to control inflation did not change course on Wednesday, September 7, 2022. In its much-anticipated announcement, the bank raised the overnight lending rate by 0.75%, bringing it to 3.25%.
This post was first published in September 2022. The rates and figures below are from that time.
The September 2022 hike to control inflation
This was the fifth increase of the year. To put it in context, the Bank of Canada started with a 0.25% rate at the beginning of the COVID-19 pandemic.
The experts expected that we might see one or even two more increases of 0.50% by the end of the year. Indeed, the statement released by the bank showed that this mood would continue until inflation came down to an acceptable rate of 2%.
In short, the bank made it clear that its first goal was to control inflation, even at a cost. You can read the bank’s own statements on the Bank of Canada website. I also previewed this decision in my post on what to expect from the September announcement.
What rate hikes to control inflation mean for your mortgage
Major banks have followed, or will follow, suit and raise their prime rates. So what does that mean for homeowners?
There are two possible cases. In the first case, the bank does not change your monthly payment. Then the overall payback period grows, and it takes many more years to pay off your mortgage.
In the second case, the bank adjusts your rate after the Bank of Canada’s increase. Then you have to budget for an increase of several hundred dollars in your monthly mortgage payment.
The first case is worrisome, but the second is even more serious. Many families have already stretched to their limits. For them, coming up with the extra money each month will be hard. So the effort to control inflation lands directly on household budgets.
Jobs, growth and the risk of recession
Despite the higher inflation, we had seen the economy booming. The unemployment rate had also been at its bottom in recent days.
However, many experts raised concerns that a one-point agenda to control inflation may lead Canada into a recession. Some forecast that we may lose close to a million jobs if we enter a recession.
Many economists also worried about slowing the economy and pushing up unemployment. In addition, they noted that we had not yet seen the true impact of the rates already raised. That impact would become much clearer when homeowners renew their mortgages.
My view: a human-focused way to control inflation
My opinion is that all our policies, including fiscal policies, should always be human-focused. After all, policymakers are not here only to crunch numbers. Instead, they should make decisions that make the average person’s life more comfortable.
Having said that, I would take a hybrid approach. Along with the traditional tool of rate hikes, I would work to increase supply. But I would not rely only on raising rates, regardless of what happens to the common person.
Despite higher prices, having people in jobs and putting food on the table for their families is much better than people losing jobs, declaring bankruptcy and turning to food banks. We can control inflation and still protect working families.
Practical steps for Mississauga homeowners
Rates have moved a great deal since this post was written. Still, the same steps help whenever rates rise to control inflation.
- First, know your mortgage type. A fixed-rate, a variable-rate and an adjustable-rate mortgage each react differently.
- Next, check your renewal date. Talk to your lender or mortgage broker months ahead, not days.
- Then review your monthly budget. Build a cushion for a higher payment.
- Finally, avoid taking on new debt right before a renewal or a purchase.
For more background, read my post on the Bank of Canada’s June 2022 increase and my August 2022 market report.
Talk to a Mississauga real estate agent
Do you have questions about how rates may affect your mortgage, your purchase or your sale? Please send me a message or call me directly at 416 908 5600. I am A. Q. Mufti, Sales Representative, RE/MAX Real Estate Centre Inc., Brokerage, and I am always glad to help. If this post was useful, you can also leave a Google review.
Disclaimer: this article was published on 18 January 2025 and reflects the information available at that time. Interest rates, prices, and government programs change, so check the current position before acting on anything here. It is provided for information only and is not financial, mortgage, tax or legal advice. A. Q. Mufti is a registered Sales Representative with RE/MAX Real Estate Centre Inc., Brokerage, Ontario, Canada.
