Canadians have enjoyed historically low interest rates for the past decade, but this is projected to change. In October, the Bank of Canada announced the plan to increase interest rates to between 2.5 and 3.5 per cent, from the current 1.75 per cent.
Many Canadians are concerned about what an increase in interest rates might mean for them.
Mark Kalinowski, a financial educator at the Calgary Credit Counselling Society, believes Calgarians need to prepare themselves for these rate hikes.
“Interest rate increases are great if you have money to invest, but realistically a lot more people have debt than they do extra money,” says Kalinowski.
If you have debt, here’s what Kalinowski believes you need to know:
All of the debt that you already have is just going to increase and become harder to pay off. Interest rate increases will be impacting mortgages and lines of credit. Now is the time to stop accumulating debt.
Get budgeting, now. Identify if you are bleeding money. If so, where is it going? “Don’t nickel and dime yourself to death, but a general rule we have … is if it makes you smile or if it goes in your mouth, it can change, says Kalinowski. “So many people buy a coffee and a breakfast sandwich every morning, and once they start making their own breakfast it really does make a huge difference for their budget.”
If you need to take out a loan or mortgage, get a fixed rate instead of a variable rate. Variable rates increase and decrease with interest rates, so with anticipated rate hikes, fixed is the best bet. Since the current Bank of Canada rate is 1.75 per cent, there’s no time like the present to lock it in.
If you need to take out a line of credit, get a consolidation loan instead. Debt consolidation loans simplify finances by grouping all payments into one, and usually mean paying lower interest. Consolidation loans are a great option for paying off debts that would otherwise take decades to pay off, and result in a lower monthly payment. People with good credit scores can get consolidated loans without needing to offer collateral. The key, says Kalinowski, is ensuring “all your credit cards are put on ice afterwards so debt doesn’t continually build while you’re working to pay it off.”
Finally, when taking out loans for whatever reason, always shop around. Visit at least two or three different banks.This creates competition for the banks receiving your business and will likely land you a better rate.
Property: To buy, or not to buy
Calgary realtor Brady Layton says now is the perfect time to invest in property, before interest rates go even higher.
Drawing from 13 years of experience, he tells prospective buyers to view the struggling market as a great opportunity.
“I believe that now is a great time to buy, but it needs to be sooner than later before interest rate increases go up even more,” says Layton, adding “with all these factors, people will look back and wish they had bought something in 2018.”
But before you jump into the housing market, Kalinowski says people should first get a financial check-up.
“Canadians really struggle with asking for help, and often take too long to seek it,” explains Kalinowski. “There are so many nonprofits and charities that are able to provide help for free. Just don’t be afraid to ask.”
Local non-profits for financial help include:
- The Credit Counselling Society, (403) 263-9905
- Money Mentors, 1 (888) 294-0076
- Consolidated Credit Counselling Services of Canada, (844) 402-2611
- Credit Canada call centre, 1 (800) 267- 2272
Editor: Robyn Welsh | firstname.lastname@example.org