🇨🇦 Your Interest Rate Toolkit

Interest rates are UP, again. The Bank of Canada raised rates 25 basis points to 4.75%, the highest level in 22 years. Yes, I am grumbling too.

We’ll look at who’s most affected by this rate hike, how much more you’ll pay on your mortgage, plus a mini-toolkit to help.

Today’s newsletter is 682 words, 3½ minutes.

1. 🏠 Pain in the mortgage

Canadian households are feeling the pain as we head into another rate increase.

A look where rising interest rates are felt the most.

Variable Rate Mortgages: Depending on province and mortgage size, expect yet another jump in payments. Let’s assume a 25-year amortization with a 6.40% variable rate that got bumped to 6.65%.

• On a $340,000 mortgage, the monthly payment increases from $2,257 to $2,308 – $51 more.
• Factoring in all the rate increases in the last 12 months, mortgage payments jump by over $600 PER MONTH.
• That’s over $7,200 more per year.

Fixed-Rate Mortgages: Brace for renewal shock if you’re at the end of a fixed term. Stick with the same lender and you won’t need to pass the Mortgage Stress Test. If shopping around for another lender, be prepared to stress-test 2% higher than your rate to qualify.

HELOCs: As rates go up, monthly interest payments head north too. HELOCs are often persistent debt where homeowners pay just the monthly interest and not the principal. Keeping up with larger HELOC payments plus a growing mortgage is a pressure no one wants.

Canada Student Loans: Canada Student Loans and Canada Apprentice Loans are now permanently interest-free, including ones being repaid right now. Those with provincial student loans may still have interest obligations. It’s best to contact your provincial student aid department for guidance.

Car Loans: These tend to be fixed-rate loans, so you won’t see an increase unless you refinance or purchase a new vehicle.

Credit Cards: Credit cards in Canada most often have a fixed rate, so a hike has little effect. But with rates hovering around 19.99% it’s impossible to rejoice.

Savers Market: Rates for savings accounts tend to lag far behind, especially at the big banks. Credit Unions and online alternative banks are boasting more competitive saving rates. At the time of writing I’m seeing 5.25% for HISAs and returns of 5.0% on 1-year GICs.

2. ⚒️ Mini Toolkit for the times

Many have already reduced spending. Here are some resources to help:

Cut food costs. I wrote an explainer on How to cut food costs with inflation. I also did a TikTok on how to use Unit Pricing to fight back.

Cash Flow Checkup. Add up your debt payments, utility bills, rent or mortgage, HELOC, child care, gas, car payments, food, and all of the things. Does your income cover it? Check for hidden recurring costs (like subscriptions) and cut. My free Budget Bundle can help.

• TFSA: It may be time to tap your emergency fund or your Tax-Free Savings Account (TFSA) if cash flow is a concern. I wrote about using TFSAs.
• Human behavior is complicated, and our emotions can be our greatest foe. My free audio course How to afford the life you want walks you through financial habits, behaviors, and missteps that cost you.

5. 🩺 A little bit of help

One of my favourite interviews is with licensed insolvency trustee (LIT) Doug Hoyes. In an episode of The Cash and Kerry Podcast, he explains How to raise your credit score, the reality of debt-repayment, and how a LIT can use a tool called a Consumer Proposal to reduce debt obligations. Highly recommend this episode.

I did a live Q&A with the CBC a while ago and discussed 6 Ways an interest rate hike affects your finances. I answered a lot of questions. Maybe one of my answers will resonate.

Until next week, take care of yourselves. Crunch your numbers and get in the know.

Love love love,
Kerry