Take Some Interest, In Interest Rates.

On July 11th the Bank of Canada raised its benchmark interest rate a quarter point, to 1.5%. You’ve probably heard a lot about this over the last couple of weeks, as television news personalities and newspaper columnists have each tried to explain why the rates went up and how this will impact the Canadian economy. But what about you? What does a rate hike mean for the average Canadian family?

Let’s start with homeowners. The Bank of Canada rate hike has implications for both variable rate and fixed rate mortgages.

Variable-rate mortgages:

Your monthly payments will go up because a variable rate moves up or down along with the general level of interest rates in the economy. Often, banks will adjust their variable rates within days or even hours of the Bank of Canada’s announcement. Take a look at your statement and call your bank or lender to find out how the rate hike will impact your bottom line.

Should you consider switching to a fixed-rate mortgage? Variable-rate mortgages offer homeowners the opportunity to switch to a fixed-rate during the term of the loan. While this might make you feel more comfortable, especially if you believe the Bank of Canada will raise rates again, make sure you find out what the conversion rates are and consider how long you are required to ‘lock in’ for. If you are in a fixed-rate mortgage and the Bank of Canada reduces the interest rates, you will continue to pay higher interest. Get some good advice before making any significant decisions like this.

Fixed-rate mortgages:

Payments for current homeowners stay the same; however, when your mortgage term is up, you will probably face a higher interest rate at renewal. This will affect mortgage refinancing as well. Do keep in mind that if you have a five-year mortgage that will be up for renewal soon, today’s rates might be lower than the rate you locked into five years ago.

Lines of credit:

Your payments are likely going to go up. Although the quarter point increase was small, a series of increases could mean bigger debt repayments.

Car loans:

Your payments will likely stay the same. Most auto loans have fixed payments, whether your rate is fixed or variable. Your loan repayment period will stretch out if you have a variable rate, meaning your payments stay the same, but it will take you a bit longer to pay off your loan.

Credit cards:

If you have a variable interest rate on your credit card then you will see a small increase in your minimum monthly payment. If your rate is fixed you will not see any changes to your monthly minimums. Think about what higher payments on some of your other debts might mean for your available income and plan accordingly. You want to try to avoid missing payments, as that will negatively impact your credit rating.

If you need any further information on any of these matters, or you just want to talk further about interest rates, please don’t hesitate to get in touch.