How do changing interest rates affect my mortgage payments?

The News

The Bank of Canada has increased the key interest rates twice this year so far. This in turn caused the commercial banks to increase their interest rates, which will cause consumer interest rates to be increased.

Many people are quite concerned about how this can affect their monthly debt payments. The plus side of increased interest rates means that the Bank of Canada is confident in the economy. This means that our economy is recovering and growing. This will also lead to a stronger dollar – which is good for everyone.

Below are a few of the most common questions we are asked by our customers.

Photo: CBC News

What are the current rates?

Currently the Key Interest Rate is 1.0% and the Prime Lending Interest Rate is 3.2%

Last updated 2017-09-08

What types of debt will be affected?

  • Variable Rate Mortgages
  • Fixed Mortgages – when renewed
  • Lines of Credit/Home Equity Lines
  • Variable Rate Credit Cards
  • Student Loans

How much does an increase cost the average person?

There is no set formula for exactly how your payment will be affected as each case is unique. Different amounts owed, different rates, different amortization periods. Below is a calculator that will help you calculate the affect of rate increases on your current mortgage payment.

How it Works:

To accurately use this calculator you will need your current interest rate, amortization period, amount of your payments, and frequency.

Amortization period — this is the length of time it will take to fully pay off the mortgage. Most mortgages have a 25 year amortization in Canada.

Payment frequency — this is how often you pay your mortgage. Once per month (12x/yr), twice per month (24x/yr), every other week (26x/yr), or accelerated bi-weekly (26x/yr)

Credit: Global News & Rate Hub

What are some ways I can minimize the impact?

This is probably the most important question to everyone – how can I make it so this change affects me as little as possible. The following are some strategies you can use to minimize the impact of interest rate changes.

  • Start increasing payments to pay down debt (if possible).
  • Call your lender to see if you qualify for lower interest rates.
  • Lock in mortgages to a fixed rate mortgage if you are currently on a variable rate.
  • Start budgeting incorporating higher borrowing costs into your budget.

Learn more about the best ways for Canadians to get out of debt.

If you are just making your minimum payments and will not be able to afford the higher minimum payments call us to help!