Financial bloggers have been warning us, economic experts have been predicting it, and now it’s finally happened — the Bank of Canada has raised interest rates. On July 12th, the overnight lending rate went from 0.50 to 0.75 per cent. It certainly received a lot of attention from the news media — but is it something that should concern you?
If you want to know whether the recent hike in interest rates will affect you, start by asking yourself the following questions:
What kind of debt do you carry?
Whether you have a mortgage, vehicle loan, line of credit or credit card debt, your first concern should be whether it has a fixed rate or variable rate of interest. If you have debt with a fixed rate of interest, you won’t be immediately affected. If you have a variable-rate debt — a mortgage, for example — your payment may go up immediately.
This online story from Global News provides a simple overview of “how the interest rate hike affects your wallet.” If you still have questions, it’s a good idea to contact your bank or lender.
Will larger debt payments strain your budget?
At first glance, 0.25 per cent may not seem like much of an increase, but many economic experts are predicting another 0.25 per cent hike in a few months. Will rates continue to go up after that? It’s hard to predict. In the meantime, take the time to stress test your current debt and plan ahead.
For variable-rate debt like credit card balances or an unsecured line of credit, you can use a debt repayment calculator. Plug higher rates of interest into the online tool to see if you can still afford to make your payments.
If you’re renewing your mortgage shortly — or even in the next two or three years — use a mortgage calculator to see what affect a higher mortgage payment will have on your budget.
If your budget is already stretched to the limit, or you’re living paycheque to paycheque, now is the time to seriously work on paying down your debt.
A household budget helps. One of my earlier blogs — Taking Control of Your Finances with a Budget — will help you create a working budget if you don’t already have one.
Knowing your options for getting out of debt also helps. If you’re struggling to make your payments, What to Do When Debt Becomes a Problem lists some of your options for debt relief.
So, should you be concerned about this recent hike in interest rates? If you’re still not quite sure, here’s a bit of light reading on the subject on our BDO Debt Solutions website: How to Get Ahead of Rising Interest Rates (posted before the recent rate increase) provides a few helpful strategies for dealing with your mortgage debt.
Jayson Stoppel is a Licensed Insolvency Trustee and Chartered Accountant with BDO First Call Debt Solutions. With over 15 years in practice, Jayson assists individuals, families and companies with financial difficulties in Thunder Bay and throughout Northwest Ontario. To reach Jayson by email: JStoppel@BDO.ca
