Concerned About Rising Borrowing Costs? Tips to Navigate.
There’s some good as well as bad news about rising borrowing rates. First, the bad: interest rates will likely continue an upward climb, influenced by such factors as inflation, geopolitical events, economic crises and bond prices. The good news is that mortgage interest rates will still be lower than they have been historically.
Inflation is at its highest level since 1991. Combined with rising interest rates — intended to contain inflationary pressures — the risk of a recession lurks on the horizon for 2023. This means that debt could become a concern for you.
North Peace Savings & Credit Union has numerous tips to help guide you through the gathering storm.
•Expect higher debt payments. With the bank prime rate nudging close to five percent, economists predict that the average household’s debt payments will increase by $2,000 annually. Start planning now for monthly payments to increase by 15 percent to 30 percent. The most effective strategy is cutting back on spending.
•Lock in your mortgage
If interest rates rise, ask yourself if you can afford a higher mortgage payment a year or so from now. Consider locking in your variable rate or open mortgage for a longer period of time.
• Pre-qualify for a mortgage now
If you are planning to buy a home, prequalify now for a mortgage at a locked-in rate. The timing couldn’t be better. According to the Canadian Real Estate Association, the average home price dropped 18.5 percent from February to June. This downward trend is likely to continue. Some economists are predicting a further decline of 20-25 percent by the end of 2023.
• Lock in a low interest rate for debt
If you have a large line of credit balance or credit cards or loans, consider locking in these debts at a lower interest rate. Even better, pay off your debt as quickly as possible to avoid high interest rates down the road. Avoid deferred payment plans, which will mean you will likely have to pay a higher interest rate down the road.
•Involve the family in budgeting
Don’t spend more than comes into the household. Hence, you need to have a budget. Immediately reduce spending, particularly on non-essential items. Pack lunches and snacks rather than buying them. Cancel subscriptions. Reduce gift giving. Find apps for budgeting. Generate income in your home by renting a room to a student or, if you reside in a condo, rent out your parking space. Encourage the teens to get a job. Keep your used car and plan for stay-cations.
•Try to make more money
Ask for a raise, bonus or improved benefits or look for better employment. Upgrade your résumé to boost your job market appeal and consider taking a course or diploma to enhance and modernize your skill set.
•Analyze your investments
Your retirement portfolio and investments like stocks, bonds and guaranteed investment certificates (GICs) are being affected by inflation rates. Talk to your North Peace Savings Financial Advisor to discuss how to optimize your investments. Consider diversifying, including increasing international exposure, across various inflation-resistant assets and asset classes.
Contact one of the North Peace Savings and Credit Union Advisors today. 1-877-787-0361
Supporting you with expert advice at every stage of life.
Ted is passionate about Credit Unions, having served within the co-operative system across Canada for over 25 years. Ted’s longstanding career began front of house serving Members, as a financial services representative with Island Savings Credit Union on Vancouver Island back in 1994. Ted furthered his education and experience within the credit union system laddering into leadership at Kootenay Savings in Trail, B.C. where he served as the senior regional manager of retail sales and…read more