Inflation impacts more than just your grocery bill—it directly affects your mortgage, borrowing costs, and overall financial health. As the Bank of Canada adjusts their lending rates, understanding how it works is key to navigating changes in your variable or fixed mortgage. Check out my YouTube video about inflation, or read on to find out more!
What is Inflation?
Inflation refers to the rising cost of goods and services over time, reducing the purchasing power of your money. For example, a plumbing job that costs $100 this year might cost $120 next year, which represents a 20% inflation rate.
The Bank of Canada aims to keep inflation between 1% and 3% – 2% is the ideal target. To achieve this, they adjust the key lending rate, increasing it to slow inflation or cutting it to stimulate the economy during deflationary periods.
How Inflation Affects Borrowers
It impacts borrowers especially in three ways:
- Cost of Goods and Services: Rising prices mean everyday essentials become more expensive.
- Paycheck Value: Your income might not stretch as far.
- Borrowing Costs: Changes in the Bank of Canada’s rates affect variable-rate mortgages directly, while fixed rates are influenced by broader economic conditions.
Variable vs. Fixed Mortgages
- Variable-Rate Mortgages: Your payments change as the Bank of Canada adjusts its key lending rate.
- Fixed-Rate Mortgages: Your payments remain steady, but fixed rates are influenced by economic trends, not directly tied to inflation-fighting measures.
If you’re looking to get pre-approved for a mortgage to buy a property in Edmonton, fill out my online application. I’m here to help you every step of the way.
About Jason Scott, Edmonton Mortgage Broker
Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’ll be your trusted partner who will help you get the right mortgage for your family home or Investment property. I’m Jason Scott, and I’ll be your Mortgage Broker in Edmonton.
