The impact of the rate increase on the portfolio

Thus, it is important to remind owners that the increase in rates has an impact on loans, especially mortgages. But obviously, this also has an impact on the line of credit or any other form of loan. Their interest is linked to the rates set by the BoC. The rise in rates could therefore have an impact on their ability to repay their loans.

Obviously some will feel the impact of this increase more quickly. So homeowners with variable rate mortgages have certainly seen their mortgage payments rise whenever interest rates rise. Those with a fixed rate mortgage will only feel the effects of the increase when they renew their mortgage.

Many loans such as credit cards and car loans are likely to have fixed rates. The latter will therefore not be hit by the BoC’s rate hike.

Explain to your clients that the BoC is not acting against them in this way, but to reduce inflation, which will peak in June 2022. This increase in inflation is linked to many factors, including the problems of supply chain, attributable to the pandemic and the war in Ukraine.

What to do?

Once we understand the reason for the increase and its impacts, it is time to take action.

The first thing to do is review your budget. Although interest rates are supposed to curb inflation, they will likely rise along with the price of food and gas. It is therefore important to review your budget and adapt to the new prices.

  • Pay off debts with a high interest rate

These debts should always be prioritized, but this is even more true in this case. Always pay off any debt with higher interest rates, such as credit cards or personal loans, first.

  • Keep an eye on your borrowing costs

Your customers should monitor their variable rate debt, as variable rate debt will be affected by rising interest rates. Whether interest rates rise now or later, your customers need to review their budgets to be prepared for additional expenses.

  • Review your investment strategies

The advantage of rising interest rates is that they can make some investments more attractive. The return on GICs is usually linked to interest rates, so rising interest rates can benefit your investment portfolio.

In conclusion, remind your customers that rates will not increase indefinitely. The economy operates in cycles, markets and rates fluctuate. So if the situation seems complex at the moment, it is only an ephemeral state, so it is good not to lose track.

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