Recently, the Bank of Canada has taken significant steps to address economic change, inflation and maintain financial stability. How? A prime interest rate increase, which can have significant implications on a number of financial aspects, including rate renewals. As a consumer, understanding these changes and taking proactive measures can help you save money and avoid falling for enticing (and potentially misleading) promises from certain financial institutions. Let’s explore the impact of the Bank of Canada interest rate increase rate renewals where I’ll provide actionable tips on how you can save money by shopping around.
The Bank of Canada Interest Rate Increase
The Bank of Canada periodically adjusts its benchmark interest rate in response to economic conditions. An increase in the interest rate can have a domino effect on borrowing costs, impacting various financial products offered by banks. Two key areas that often feel the impact of interest rate changes are prime rates and mortgage rate renewals.
Understanding Prime Rates and the Impact
Prime rate serves as the foundation for many lending products, including variable-rate mortgages, lines of credit and personal loans. When the Bank of Canada raises its interest rate, banks may follow suit and increase their prime rates accordingly. Consequently, borrowers will face higher interest costs on their loans and credit products tied to the prime rate.
If you currently have a mortgage or any other loan with a variable interest rate, the interest rate increase by the Bank of Canada could lead to higher monthly payments when it’s time for rate renewal. This increase in the cost of borrowing can add financial strain to your budget. I always recommend shopping around!
Saving Money by Shopping Around
While your current bank might present an appealing offer when it’s time for rate renewal, it’s crucial not to rush into accepting their proposal without doing due diligence. Shopping around for better offers from other financial institutions can potentially save you thousands of dollars over the life of your loan. Here are some steps to consider:
- Research & Compare Rates: Look beyond your current bank and investigate what other lenders are offering. Online rate comparison tools and mortgage brokers can help you find competitive rates tailored to your financial situation.
- Negotiate with Your Current Bank: Don’t hesitate to negotiate with your current bank once you’ve obtained competing offers. They may be willing to match or beat the rates you found elsewhere to retain your business.
- Consider Fixed-Rate Options: If the recent interest rate increase makes you uneasy about future rate fluctuations, consider switching from a variable-rate to a fixed-rate mortgage. Fixed-rate mortgages offer stability by locking in your interest rate for a set term.
Don’t Fall for the Banks’ Promises
As interest rates rise, banks may attempt to attract customers with seemingly attractive offers and promotions. However, be sure to read the fine print and be cautious about any promises that appear too good to be true.
It’s been known that certain financial institutions offer a “teaser rate”, that means the rates seem exceptionally low, but are subject to significant increases after a short period. Understand the full terms and potential future rate adjustments.
Also consider the long-term implications of your decision. A slightly lower rate today might not outweigh the benefits of a more competitive and stable offer in the future. And lastly, penalties and fees can be hidden. Those fees might nullify the apparent savings you expect from an offer.
I Can Help!
Right now, we have some great rates amidst this interest rate increase. Don’t let this be another stressor on an already stressful time, reach out if you would like to review your options!
I want to help you save money and secure the best financial deal and remember, it’s essential to shop around and compare! Being informed and proactive in your approach will empower you to make financially sound decisions and navigate this changing interest rate landscape effectively.