🛠 Interest rate toolkit
Interest rates are UP, UP, and UP, both in Canada and the United States. We’ll look at who’s most affected by this rate hike, how much more you’ll pay on your mortgage, plus a mini-toolkit to help.
🚨 The Bank of Canada raised rates 50 basis points to 3.75%, a 15-fold increase in just eight months.
🚨 Americans are feeling it too – mortgage rates have more than doubled since the beginning of the year, and The Federal Reserve could hike more.
🇨🇦 🇺🇸 I’ve some Canadian-specific content today, but haven’t forgotten my American readers. Follow the flags for news you can use!
Today’s newsletter is 843 words, 4:15 minutes.
1 big thing: 🇨🇦 Ouch
Canadian households are feeling the pain as we head into our sixth consecutive rate increase since March.
What changes: Let’s look at where rising interest rates are felt the most.
Variable Rate Mortgages: Depending on province and mortgage size, expect yet another jump in payments. Let’s assume a 25-year amortization with a 4.30% variable rate that got bumped to 4.80%.
- 🚨 On a $340,000 mortgage, the monthly payment increases from $1,844 to $1,941 – $95 more.
- Factoring in all the rate increases of this year, mortgage payments jump by over $600. PER MONTH.
- That’s over $7,200 more per year.
Fixed-Rate Mortgages: Brace for renewal shock if you’re at the end of a fixed term. Stick with the same lender and you won’t need to pass the Mortgage Stress Test. If shopping around for another lender, be prepared to stress-test 2% higher than your rate to qualify.
HELOCs: As rates go up, monthly interest payments head north too. HELOCs are often persistent debt where homeowners pay just the monthly interest and not the principal. Keeping up with larger HELOC payments plus a growing mortgage is a pressure no one wants.
🎓 Canada Student Loans: Students still get a break since interest was suspended until March 31, 2023.
🚗 Car Loans: These tend to be fixed-rate loans, so you won’t see an increase unless you refinance or purchase a new vehicle.
💳 Credit Cards: Credit cards in Canada most often have a fixed rate, so a hike has little effect. But with rates hovering around 19.99% it’s impossible to rejoice.
🏦 Savers Market: Rates for savings accounts tend to lag far behind, especially at the big banks. Credit Unions and online alternative banks are boasting more competitive saving rates. At the time of writing I’m seeing 2.85% for HISAs and returns of 5% on 5-year GICs.
2. 🛠 Mini Toolkit for the times
🇨🇦 🇺🇸 Many of us have already cut spending – even on essentials like food – because rents, monthly mortgage payments, and credit card debt have soared. Here are some resources to help:
Cash Flow Checkup: Add up your debt payments, utility bills, rent or mortgage, HELOC, child care, gas, car payments, food food food, and all of the things. Does your income cover it? Check for hidden recurring costs (like subscriptions) and cut. My free Budget Bundle can help.
- 🇨🇦 TFSA: It may be time to tap your emergency fund or your Tax-Free Savings Account (TFSA) if cash-flow is a concern. See TFSA withdrawl rules.
Human behavior is complicated, and our emotions can be our greatest friend or foe. My free audio course How to afford the life you want walks you through financial habits, behaviors, and missteps that cost you.
Asking for help is OK: If struggling to keep up with debt, don’t wait until it’s too painful. Consider visiting a licensed insolvency trustee (LIT) – they work on your behalf and offer many options, like consumer proposals. A financial planner who charges an hourly or flat rate can help too.
3. 🌎 Around the world
🇺🇸 U.S. mortgage interest rates jump to 7.16% (Reuters)
🇺🇸 Fed to hike by 75 bps again on Nov. 2 (Reuters)
🌎 Recession or Inflation? Governments must pick their poison (NPR)
4. 🩺 Net worth isn’t self worth
🇨🇦 🇺🇸 Time for a little self care.
Owe vs Own: Net worth is what’s left after subtracting the amount you owe from the value of what you own. Net worth can be a volatile force, moving up and down and taking emotions along for the ride. Your self worth is priceless, please don’t tie it to whatever the market is doing. If you got my last newsletter, you heard from behavioral economist Dan Ariely on the most important investment today.
5. 🎙 All of the media
I did a whole lotta media this week. I was on a few call-in shows and talked about all things rate hikes. Two are now online.
- Daybreak North with Carolina de Ryk
- CBC Early Edition with Stephen Quinn: Personal finance expert Kerry Taylor on another interest rate hike
Love love love,
Kerry