You’re going to hear a lot of people talk about the Bank of Canada today. This morning, they raised the benchmark interest rate from 0.75% to 1%. This follows their action in July where they moved it from 0.50% to 0.75%. What does it mean for you though? How does the interest rate impact your life both positively and negatively?
Interest Rates and Homeowners
When interest rates change by the Bank of Canada, it affects homeowners directly. When you take on a mortgage, your interest rate is based upon both the Bank of Canada’s rate and your lenders’ rate. Typically, when the Bank of Canada raises rates, that results in the same rate hike by lenders. There are two ways this plays out depending on your mortgage.
Variable Rate Mortgage
If you have a variable rate mortgage, your payments will be going up immediately. This is because your rate moves up or down in real time.
Fixed Rate Mortgage
If you’ve taken on a fixed rate mortgage, you need not worry right now about raising mortgage payments. Your fixed rate means that it does not change over the course of your active period. When you do go to renew the mortgage, you will then pay higher rates though.
Home Equity Line of Credit (HELOCs)
Many people have taken advantage of low-interest rates in the last few years by taking out Home Equity Line of Credits. Essentially, this is where you borrow against the equity you’ve built up in your home. Most HELOCs are variable rate based, and as such, having one became more expensive to repay.
Personal Property and Interest Rates
Interest rates going up don’t only affect homeowners, they impact everyone with any kind of loan. Interest rates going up are a sign that the economy is strong though, so the thought is you will still be able to afford repayments. That said, not all personal property loans are affected.
Money Loaned for a Car
Surprisingly, car loans are most often not affected by interest rate changes. They often come with a fixed rate, meaning that your car payments will continue to be the same. Even if you have a variable loan on a car, your payments will remain the same, but the number of payments may increase.
Credit Card Debt
Here’s a big one that affects a lot of us – credit cards and the balance on them! Many credit cards come with variable interest rates. If that’s the case, your repayment terms are going to be higher on the next payment due. For a fixed rate on the credit card, make sure you don’t miss a payment as the credit card company can jack the rates by 5% or more.
The Canadian Dollar
One of the great things that comes with interest rate hikes is usually a spike in the dollar value. Already today, the Canadian Dollar hit $0.82 against the US Dollar. That’s the highest it’s been since 2015, and 15 cents higher than it’s low in 2016. When the dollar is higher, it makes it easier to travel to the United States and buy things as your dollar has more value. As a side benefit, when the dollar goes up, prices in Canadian stores generally come down in the months ahead.
How to Insulate Yourself from Interest Rate Changes
When we talk about insulating yourself from interest rate hikes, we’re talking about money saving strategies. You can avoid getting coffee from a coffee shop. Or order take out a little bit less. You can avoid avocado on toast if you’re a millennial. You could also try to increase your income with a part time job. But, at isure, we’re confident one of the best and quickest ways to save money is by seeing what you can save on home insurance or car insurance.
Each day, we help people in Ontario find better deals on their car and home insurance either over the phone or through our simple online quote system. While interest rates will affect loans and mortgages, saving on insurance can help soften that blow. There’s no obligation, submit a quote and see if you could be saving!