Raising interest rates and how it will affect your cash flow

Earlier this week, the Bank of Canada announced another rate increase of 0.75%. There are rumors that there might be other rate increases this year and next year. This brings the lending prime rate to 5.45%. It’s a rate my generation has never seen. But our parents and grandparents have dealt with even higher rates.

These rate increases are an effort to control inflation. We're all affected by the cost of groceries and gas going up and we’ve also seen substantial increases in property values over the last 2 years. Rate increases can, for example, help cool the housing market, and therefore help curb inflation.

What does this mean for your cashflow?

In my many years working in financial planning, including lending, I've never recommended a fixed loan for my clients. Historically, a prime plus loan (with a decent rate) allow for predictable loan repayments, and fixed rates were usually higher. Nowadays, if rates go up, your ability to repay or your comfort level with taking longer to pay need to be taken into consideration. Talk to your lending agent next time you need a loan or loan renewal about their fixed rate vs. variable rate.

What about your mortgage?

I recently met with a client whose mortgage was coming for it’s first renewal. Just last year I closed a mortgage at 1.72%, and this year mortgage rates are in the 5% range. So, I’ve advised my clients it's time to have a look at their overall cashflow to prepare for this change.

Here are a few things to consider when looking at your cashflow:

1. Plan your weekly meals before going grocery shopping. This will help you avoid buying stuff you may not need that week. consider looking at the weekly specials and plan your meals accordingly. It might even inspire you to cook new things!
2. Skip the convenience store. If you like pop and chips, or some sweets, consider buying them when you do your groceries. You can save by buying a case instead of just one bottle.
3. Try car pooling. Heading somewhere together? Sharing the ride can cut your costs in half.
4. Skip the morning coffee. My trick is Tim Horton’s Keurig cups. I drink 2 coffees every morning. After a while, the savings start to add up.

Set up a meeting with your financial planner or advisor. 

Discussing your cashflow with them might help identify other ways to improve it!

Marie-Helene Lanoix-Verreault, CFP^®
Financial Security Advisor
at Sigouin Financial Group Inc.