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3 things to consider with the Bank of Canada overnight rate increase.

If interest rates go up, don’t panic. But do act.

They say that “the only constant is change”. If that’s the case, one couldn’t expect the Bank of Canada (BoC) overnight rate to remain as low as it has forever. And although the increase July 12th will probably affect the amount of interest you pay on some of your debt, there are steps you can take to minimize the impact.

1. Re-evaluate your debt, because it, too, changed overnight.

You should always be aware of how much debt you have, and the amount of interest you’re paying. But a change to the BoC overnight rate is a wake-up call to re-evaluate your debt, try to pay it down, and start to save more. And don’t just look at how much your monthly payments are. Look at how much a mortgage, car loan or credit card will cost you over a longer period of time. That could just prompt you to stop making the minimum monthly payment and try to eat away at the principal. “Having less principal to pay down is going to protect you from rate hikes in the future, too” says Director of Lending Services Amedeo Perfetto, AMP.

2. Will your mortgage payments increase? Time to adjust your budget.

Although fixed-rate mortgages may not fluctuate with the prime rate as variable-rate mortgages do, even mortgage-holders with fixed rates need to budget to pay more when interest rates rise. Truth is, banks can still raise the rates on all types of mortgages — something customers might find out when it comes time to renew.

3. Work with a professional to get the best mortgage rate.

When it comes time to renegotiate your mortgage, don’t be afraid to do just that: negotiate. “Many Canadians don’t negotiate enough”, says Amedeo. “At Educators Financial Group, our accredited mortgage professionals do the negotiating for our clients, searching for the best rate.” Wondering how a mortgage professional can help you in your search for the right home and the right mortgage?

You can find out more, here.

The change to the BoC overnight rate on July 12th is not a one-time occurrence. As long as the BoC continues to use “Inflation targeting” as a means of controlling the economy, other changes will occur. The key is ongoing management and understanding of your finances with the help of a professional, such as the experts at the Educators Financial Group.

Need help? Have one of our lending specialists contact you.

 

Read more: It pays to understand the Bank of Canada overnight rate increase.

 

Sources:

http://www.pearsoned.ca/highered/showcase/ragan/pdf/9780321685537_ch29.pdf

http://www.frbsf.org/education/publications/doctor-econ/2007/march/inflation-targeting-monetary-policy-costs-benefits/

http://www.bankofcanada.ca/rates/indicators/key-variables/inflation-control-target/

http://www.moneysense.ca/spend/real-estate/mortgages/do-bank-of-canada-rates-impact-you-10-questions-answered/

http://www.cbc.ca/news/business/still-a-borrower-s-world-what-this-week-s-rate-hike-means-for-your-finances-1.4204180

** http://www.shannondeckers.com/will-bank-canadas-interest-rate-hike-affect-real-estate-prices/

*** http://www.tridelta.ca/articles/

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