Borrowing costs

Concerned about rising borrowing costs? Tips for navigating

There is good news and bad news about rising borrowing rates. First, the bad: interest rates will likely continue to rise, influenced by factors such as inflation, geopolitical events, economic crises and bond prices. The good news is that mortgage interest rates will always be lower than they have been in the past.

Inflation is at its highest level since 1991. Combined with rising interest rates – intended to contain inflationary pressures – the risk of a recession looms on the horizon for 2023. This means that debt could become a concern for you.

North Peace Savings & Credit Union has plenty of tips to guide you through the brewing storm.

Expect higher debt payments

With the banks’ prime rate hovering around five percent, economists predict the average household’s debt repayments will increase by $2,000 a year. Start planning now for monthly payments to increase by 15% to 30%. The most effective strategy is to reduce expenses.

Lock in your mortgage

If interest rates go up, ask yourself if you can afford a higher mortgage payment in about a year. Consider locking in your variable or open rate mortgage for a longer period.

Pre-qualify for a mortgage now

If you’re considering buying a home, pre-qualify now for a fixed rate mortgage. The timing couldn’t be better. According to the Canadian Real Estate Association, the average house price fell 18.5% from February to June. This downward trend is expected to continue. Some economists predict a further decline of 20-25% by the end of 2023.

• Lock in a low interest rate debt rate

If you have a large line of credit or credit cards or loans, consider locking in those debts at a lower interest rate. Better yet, pay off your debt as soon as possible to avoid high interest rates later. Avoid deferred payment plans, which means you’ll likely have to pay a higher interest rate later.

• Involve the family in budgeting

Do not spend more than what goes into the household. Therefore, you must have a budget. Reduce expenses immediately, especially on non-essential items. Pack lunches and snacks rather than buying them. Cancel subscriptions. Reduce gifts. Find apps for budgeting. Generate income in your home by renting a room to a student or, if you live in a condominium, rent out your parking space. Encourage teenagers to find a job. Keep your used car and plan trips.

• Try to earn more money

Ask for a raise, bonus or improved benefits or look for a better job. Improve your CV to strengthen your attractiveness in the job market and consider taking a course or a diploma to improve and modernize your skills.

Analyze your investments

Your retirement portfolio and investments such as stocks, bonds and guaranteed investment certificates (GICs) are affected by inflation rates. Speak 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 advisors at North Peace Savings and Credit Union today. 1-877-787-0361

Accompany you with expert advice at every stage of life.