Interest rate changes can have significant effects on the average consumer, with rate hikes triggering immediate changes to debt costs and payment requirements. Read on to learn what Canadian consumers should understand about interest rates, including how they can impact you and your finances \u2013 and what you can do to deal with your debt if you\u2019re feeling financially stretched.<\/p>\n
The Bank of Canada is the country\u2019s central bank; it is a special type of Crown corporation belonging to the federal government that exists \u201cto regulate credit and currency in the best interest of the economic life of the nation<\/a>\u201d with their primary role being \u201cto promote the economic and financial welfare of Canada\u201d.<\/p>\n Monetary policy is a core Bank of Canada function, and two main instruments used in this are its inflation-control target and the key policy rate:<\/p>\n Financial institutions borrow from each other and can also use the Bank of Canada, and by setting their <\/em>policy rate the Bank of Canada encourages financial institutions to borrow and lend amongst themselves near the policy interest rate too. What this means is that although the public doesn\u2019t borrow with the Bank of Canada, their policy rate affects interest rates on products such as:<\/p>\n When the Bank of Canada changes their rate, lenders will generally adjust their prime rates shortly after.<\/p>\n Depending on which products (types of debts) you have, and whether your debts have fixed or variable interest rates, the impact of an interest rate increase can vary widely, from very significant to having no impact at all.<\/p>\n Below is a breakdown of different types of common consumer debts, and how they may be impacted (or not) by interest rate changes:<\/p>\n The biggest impact of interest rate increases is likely to be felt by homeowners who are carrying variable interest rate mortgages.<\/p>\n Conversely, on a fixed rate mortgage, your payments will not increase as you have \u2018locked in\u2019 the rate you will be charged over the term of the mortgage. At renewal time however, you can expect that the rates you locked in at previously may no longer be available and your new interest rate upon renewal could be significantly higher.<\/p>\n Can I Get a Mortgage After a Bankruptcy or Consumer Proposal?<\/a><\/p>\n Most lines of credit (whether secured against your home or not) are offered with a variable rate, which means there is a direct impact of an interest rate increase.<\/p>\n Most vehicle loans are structured with a fixed interest rate, meaning that payments wouldn\u2019t change at all.<\/p>\n Although an interest rate hike won\u2019t cause a direct increase on your monthly vehicle financing payment with a fixed interest rate, individuals with vehicle financing should be aware that:<\/p>\n If you do have a vehicle financing contract with a variable interest rate component, normally a rate-hike will mean extending the time you\u2019ll make payments so that the additional interest rate costs are paid.\u00a0<\/em><\/p>\n An Overview of \u2018Seize or Sue\u2019 and Vehicle Loans in BC \u2013 Learn More<\/a><\/p>\n If you have a fixed-rate student loan you won\u2019t be impacted with increases in your interest rate or monthly payments, but following increases in prime rates, future student loans can become more expensive.<\/p>\n However, if your student financing is using variable rates, both your interest rate and minimum payments will increase with interest rate hikes.<\/p>\n Most credit card terms are set without regard for prime interest rates and if your only debt is on credit cards then your monthly payment requirements are unlikely to be impacted by an interest rate increase.<\/p>\n With standard credit card interest rates hovering near 20%, the very real danger of interest when it comes to credit card debt is that the interest charged is always expensive, regardless of fluctuations in the Bank of Canada rate.<\/p>\n Dos and Don\u2019ts for Credit Cards and Managing Credit Card Debt<\/a><\/p>\n The single biggest and best thing you can do to prevent or mitigate being impacted by interest rate increases is to pay down as much of your debt as possible \u2013 and even if you\u2019re mainly carrying debts not likely to be impacted by rate hikes, the sooner you get out of debt the better.<\/p>\n Learn More About Credit Reports and Scores in Canada<\/a><\/p>\n\n
What Does the Bank of Canada\u2019s Interest Rate Mean for Other Banks?<\/strong><\/h3>\n
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How Interest Rate Increases Impact Common Consumer Credit Products<\/strong><\/h2>\n
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Mortgages<\/strong><\/h3>\n
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Lines of Credit and Home Equity Loans<\/strong><\/h3>\n
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Vehicle Financing<\/strong><\/h3>\n
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Student Loans<\/strong><\/h3>\n
Are Credit Cards Impacted by Interest Rate Changes?<\/strong><\/h3>\n
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What Can I Do About Rising Interest Rates?<\/strong><\/h2>\n
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Consolidate and Cut Your Debt \u2013 Without Borrowing<\/strong><\/h3>\n