The Bank of Canada recently raised its interest rate to 1.5 per cent, prompting major Canadian financial institutions to increase their prime rates to 3.70 per cent.
This isn’t a surprising move, and overall, it’s a sign that our economy is doing well, but the question is, what does it mean for you? Unsurprisingly, the answer is that it depends. Let’s break down the various potential impacts of the interest rate hike. Who WILL benefit? Long story short, seasoned money savers should be happy with the rate increase. That’s because investments with fixed return rates, like guaranteed investment certificates and savings accounts, usually rise with interest rates. Retirees relying on interest income will find themselves with a bit more money to fund their retirement. Who DOESN'T benefit? While credit card interest rates aren’t directly affected by this kind of change, people dealing with existing debt will be negatively affected by the rate hike. If you recently became a homeowner or if you recently decided to start a family, you probably have mortgage payments to make which might be affected by the rate increase. Variable Rate Loans Fixed rate mortgages won’t be affected by the recent rate increase. However, any variable rate loans like business loans, student loans, lines of credit, and variable mortgages, will see their service cost increase. This means that new families saddled with existing debt or facing new debt following the purchase of a house, will see their interest payments increase which will limit their available cash flow each month. New Mortgages It’s important to note that even though fixed rate mortgages won’t be affected, people looking into getting a mortgage might face higher interest rates regardless of the specific mortgage they go for. That’s because the interest rates on mortgages are slowly creeping up, along with the Bank of Canada’s interest rate. Dealing with Debt – Get Professional Advice
Almost everybody has debt, and unless you’ve been a diligent money saver, the recent interest rate hike might spell trouble for you. Dealing with it can be overwhelming, which is why it’s worth consulting the professionals if you think you might need some debt help. If you’re in the Ottawa region, consider visiting a D. & A. MacLeod Company location closest to you. Whatever your situation, our team can help you find the right solution. Contact us today to set up a free consultation.