Raising Interest Rates: Everyday Challenges for Canadian Consumers

After 10 years of working to lessen the impact of the last recession, the Canadian Central Bank has begun to tighten its monetary policy and Canadian borrowers are starting to feel the impact. Shortly after the Central Bank’s second hike of a key interest rate in a season, the Canadian banks followed by raising their own borrowing rates. RBC Royal Bank, for example, raised its prime rate from 2.95 per cent to 3.2 per cent.

Borrowers can expect to see increases on the following products:

Mortgages

If you are on a variable rate mortgage, the rate hike will impact you immediately once your bank raises their lending rate. If you are on a fixed-term you will see a higher rate once it’s time to renew. If you are on a variable rate it may be wise to consider switching to a fixed rate. Many experts are predicting that the Central Bank will continue to nominally increase rates.

Lines of Credit (LOC)  & Home Equity Lines of Credit (HELOC)

Over the past decade, Home Equity Lines of Credit have become the “debt of choice” for many Canadians. Roughly 20 per cent of homeowners have one, with an average debt of $57,000. Both normal LOCs and HELOCs are tied to the prime rates charged by banks. One important difference is that a bank can make a demand immediately on a HELOC, or alter the terms to the borrower.

Credit Cards

The majority of interest on credit cards are on a fixed rate, not a variable. You should take the opportunity to confirm which type of product you have. If you start missing monthly payments you may be at risk for getting charged at higher rates.

Student Loans

Again, these loans can be either fixed or variable. Check yours to see if you will be impacted by the rate hike.

These recent hikes, and the coming ones that are being predicted, are signs that the era of “free-money” is ending. If you are having concerns about your debt level, and ability to pay if off, please contact one of our Licensed Insolvency Trustees for a free consultation.

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