BOC Interest Rate Hike and the Impact to Line of Credit Holders

Posted on 20 September 2017

We’ve spoken at length over the last few weeks about how the Bank of Canada’s (“BOC”) interest rate hike will impact Canadians. Most of what we’ve discussed has been with regard to mortgages, but what about line of credit (“LOC”) holders? If you have a line of credit, the impacts of the July interest rate hike may already be visible for you!

With fixed-rate mortgages, the interest rate won’t increase until it is time to renew, thus payments won’t change until then. However, if you have a line of credit, the rates charged by the bank will likely already have gone up as a result of the BOC increase.

There are a few things that you can do to reduce those impacts or prepare yourself for them. Here are a few valuable pieces of advice from a recent CBC News article.

  1. Pay down your debt. With interest rates increasing, this one is a no-brainer. The less you owe, the less interest you’ll have to pay. Be aware of interest rates on your various products, and adopt a plan that makes the highest rate products a priority.
  2. Call your lender to ensure that you are 100% clear on the terms and structure of your credit products.
  3. Consolidate debt. If you can’t pay off a significant amount in a reasonable period of time, consider consolidating debt to decrease interest rates and combine payments.
  4. Hold off on any and all home renovations that require borrowing. According to the article, big banks always seem to be pushing LOCs for home renovations to help homeowners increase the value of their homes. However, if you are only paying the minimum payment on a line of credit with a high interest rate, you may actually end up paying more than the increased value.
  5. Hit the reset button. The article notes that a careful review of your finances to see where your money is going is crucial. We go a step further and argue that now is the time to actually hit reset if you’re overwhelmed. While cutting back may help you save a little, there are other options available that may just save you plenty more. A consumer proposal, for example, can help you combine all of your debts into one easy monthly payment, stop interest from accumulating, and often reduce the total amount of debt that you owe. If you’re stressed and think it is time to get some real relief, a consumer proposal may just be worth considering.

Read the full CBC News article here:

If a higher interest rate has you concerned about meeting your monthly financial obligations, don’t wait until things get worse. At Spergel, we have years of experience helping Canadians regain control of their finances.

Call us today, toll free, for a free consultation: 310-4321.

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