How to plan for an interest rate increase


You may have read headlines in the news forecasting that there will be an interest rate increase soon. Any time there’s an interest rate increase is a good time to review your finances, as it will impact the rates you get from your credit union or bank on everything from mortgages to lines of credit to savings accounts.

Mortgages are generally people’s largest source of debt, so how will this affect mortgage-holders? For those with mortgages, you might want to consider reviewing your mortgage options prior to the interest rate increase if possible. Here are a few things to consider depending on the type of mortgage you have:

If you have a variable rate mortgage: This mortgage fluctuates based on the prime rate, so you may want to consider locking your mortgage into a fixed rate while rates are still low. This would allow you to know what your rate and payment will be for the length of term you choose. In many situations, a variable rate product allows you to lock into a fixed rate without any penalty at all. Check with your mortgage provider on what the penalty fee would be if you’re thinking about making a switch.

If you have a fixed rate mortgage: Now may be the time to consider renewing. Depending on where you are in your term, you may be able to renew into a new term at the same or a lower rate, further assuring your rate and payment. If you’re renewing from a higher rate into a lower rate, a penalty could apply. Sometimes it may be worth paying a penalty if the new rate is lower, especially if you’re concerned about rates rising. Your financial institution can help crunch the numbers for those situations.

If you have an open mortgage or hold a mortgage line of credit: If you are not planning to pay the balance significantly down in the near future, then locking into a fixed term could save you interest should rates rise.

Curious about how much your payments could rise? Sometimes it helps to know what the impact would be on your monthly budget if a rate increase occurs. You can use this mortgage calculator (use the payment tab) to plug in your own mortgage and adjust the interest rates to see how your payments could rise.

If you have questions, talk to your financial institution or mortgage provider. At Vancity, we welcome you to come talk to us about options relating to your specific situation.

Originally published June 29, 2017.

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This blog post provides general information only, and does not constitute financial, accounting, tax, legal or other professional advice. We encourage you to obtain personalized advice from qualified professionalregarding your particular circumstances. Please see our Terms of Use.

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