Earlier this week The Bank of Canada increased its benchmark interest rate to 1.5%; this rate hike prompted Canada’s six big banks to raise their prime lending rate by a quarter of a percentage point to 3.7%. This rate hike means higher borrowing costs for consumers with variable-rate mortgages, loans or lines of credit. But this increase is also good news for savers and future homeowners.

For those Canadians with variable-rate mortgages the increase will mean higher interest payments; a concern for many whom are already struggling with high levels of debt. This increase will simply reduce the amount of cash they have available at the end of the month.

The higher rate is good news for those with money socked away in savings accounts and guaranteed investment certificates (GICs). Seniors who depend on interest income to help fund their retirement will also appreciate the little extra. With current debt levels at all time highs; the rate hike should help Canadians stay focused on paying off their outstanding balances.

If you are one of the thousands renewing your mortgage this year, the increase is unwelcome news. Conversely, higher rates and stricter mortgage rules have cooled down the real estate market; which is good news for future home buyers.

Overall, the impact of the rate hike will be modest for most Canadians and we have to remember a rate hike is a sign of a healthy economy. Rates are expected to continue to rise slowly over the next year but keep in mind they are still at historic lows.

Interest Rates & Credit Cards

The increase in the banks’ prime interest rate won’t directly affect credit card rates. However, the interest charged on credit cards can be crippling and its important for Canadians carrying debt to always know the rate they are paying. One way to cut interest expense is to transfer the balance to a low-interest credit card or line of credit. However, be aware that some companies will charge a balance transfer fee.

Debt Consolidation

If you are drowning in maxed-out credit cards or juggling debt back and forth between institutions a consolidation loan may offer some relief. However, many people who consolidate their debt will fall back into using their credit cards before paying off the original balance.   This is a dangerous cycle. If you do choose a consolidation loan be sure to implement a cash flow plan to ensure payments are being made and a little extra is being put aside for future unplanned expenses.

Have a great weekend,

Tracey

 

 

Source: Original article posted on Advisor.ca 07-12-18 by Staff with files from The Canadian Press

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