It finally happened. After seven long years of rock-bottom interest rates, the Bank of Canada has signaled a reversal in the longstanding trend with a 0.25 percent increase to the key interest rate. Financial Institutions across the country quickly followed suit, and for the first time in a long time, interest rates are going up instead of down.
Is that good news or bad news?
The answer depends on your individual financial situation.
For many Victoria locals, the high housing prices and growing cost of living in our city can contribute to increased levels of personal debt, and people wonder if they’ll be able to make their payments if interest rates continue rising. On the flipside, our city’s significant retiree population is wondering if increasing interest rates could mean they’ll finally start seeing some better returns on their retirement savings.
Regardless of where you’re at, here are four things you can do to ensure you’re ready for whatever is ahead in the new interest rate environment.
1 – Stay calm and pay down your debt.
An interest rate hike of 0.25 per cent is no cause for panic. The cost of borrowing money remains exceedingly low—which is exactly why it’s wise to focus on paying down debt now, especially on any variable-rate loans. Many economists suggest that rates may continue to rise in the near future, so take advantage of the present situation and put the biggest dent you can in your liabilities while rates remain in the basement.
2 – Check your purchasing power.
Planning any major purchases like a home, a renovation, a vehicle or post-secondary education in the next year? Double check with your financial advisor to make sure you’ll still qualify for the amount you need to borrow if interest rates keep rising.
3 – Review your financial plan (or make one).
Now is the time to schedule a heart-to-heart chat with your financial advisor—or find a financial advisor if you don’t already have one—and take stock of your overall financial picture. Get some expert advice and make sure you have an up-to-date financial plan in place that can help you navigate this rate increase and any future ones that may be in store.
4 – Explore savings and investment opportunities.
Higher interest rates aren’t all bad news. In fact, they can mean just the opposite, especially if you’re a saver, an investor or a retiree living on a pension. Your financial advisor can help you investigate what benefits or opportunities might be opening up.
Proactively managing your financial life can help you make sure you’re in the best position to handle whatever the market throws at you, including increased interest rates.