Source: Financial Consumer Agency: https://www.canada.ca/en/financial-consumer-agency/services/interest-rates-rise.html
In the example above, suppose you have a personal loan of $10,000 with a variable interest rate and a 2-year term. Your interest rate is 14.99%.
Your loan payment will increase by $24 a month if interest rates rise by 5%. That adds up to $552 more in interest over the two years.
How does the Bank of Canada’s interest rate change affect saving money?
For savers, when the rate increases, individuals can potentially earn a higher interest rate on their savings accounts because financial institutions have more flexibility to compete on the interest rates they offer. This could mean you get an increase in GICs (Guaranteed Investment Certificates) rates. In addition, as interest rates continue to rise, you may start to see competitive pressure to increase these accounts’ interest rates. Therefore, it’s best to shop for GIC rates.
What can you do to prepare?
These are our top tips for preparing for rising interest rates:
1. Talk to us to review your current financial situation, including:
- Debt Load
- Savings- Is it time to put money into a high-interest account?
- Investments- Are your investments aligned with your financial goals?
- Your financial goals- are you on track for retirement, buying a home, vacation, or saving for your children’s education?
- Insurance- are you and your family adequately protected in case of the unexpected?
2. Talk to your lenders to find out how much your payments will increase. Review all loans and their terms, including interest rates. Loans to review are:
- Credit Card
- Lines of Credit
- Personal Loans
- Investment Loans
Consider paying off or consolidating your high-interest debt. This will help you minimize the interest you pay, give you more money for other things, and make it easier to manage your payments.
3. Talk to your mortgage broker, discuss the difference between your current variable rate mortgage and choosing to move to a fixed-rate mortgage and what makes the most sense. Use the Mortgage Calculator to see the impact of an interest rate increase on your mortgage: https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MC-CH-eng.aspx
4. Create a budget. Figure out what you can afford currently. Use the Personal Inflation Calculator to see the impact inflation has on your budget: https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MC-CH-eng.aspx
Still, have questions? We’re here to help – reach out to us today!