Canada’s economy is constantly changing. The Bank of Canada frequently raised interest rates over the last few months to combat inflation and high house prices. When you have a mortgage your fixed and variable rates depend on the prime rates set by the Bank of Canada. If you have a variable-rate mortgage, as inflation increases, so will your monthly interest payments. This increase can really have a negative impact on your financial security. In this blog, we will discuss some tips to help you get through interest rate changes if you are with a variable-rate mortgage.

Balance Your Budget

If you do not have a monthly budget set already, put together one before home shopping. A clear budget will help you see where you spending on necessities, as well as what money will be left over. In your budget, include everything you spend month per month; insurance, utilities, cable and internet, programs, subscriptions, and the list goes on. Then factor in your income and the difference between your bills and income will show what’s left over. Your fixed expenses are unlikely to be moved. However, you will be able to see areas you can cut back on to help pay for the sudden increase in mortgage payments. If you are having issues with budgeting, work with a trusted financial accountant to get your books in order.

Be Proactive

Your variable mortgage rate can be affected daily. If you know that it will be difficult to make payments should rates rise again, start planning now. Think about refinancing or renewal options, or even switching to a fixed rate to lock in the current interest rate. Or, start cutting back on unnecessary payments to have more cash on hand. You will want to ensure you can continue making your payments on time, so work with your broker or an accountant to help set you up for protection if the rates rise again.

Lock in Your Rate

The economy is in rough shape at the moment and continues to be impacted by the lingering effects of the pandemic. This makes forecasting interest rates challenging. It would be a good time to work with your broker, or lender, and see about locking in your current rate. You could be subject to penalties, but a fixed rate will offer better protection should rates continue to rise. This will help you maintain your budget and ensure your payments are made.

Watch Your Debt

When inflation raises prime rates, your credit and other loan balance will also be subject to higher interest rates. If you are carrying debt, try to pay what you can down and try to avoid deferred payment options. Consolidating credit can also help you keep up with payments. If you work with your bank or lender, you may be able to work out a solution if you are having trouble managing debt. If things are not in great shape, consider freezing any credit cards to reign in spending as well.

Of course, interest rates will not rise forever and will eventually start falling again. Taking stock of your individual financial situation now can help protect you should higher interest rates negatively impact you. It can be a challenge to get through inflationary periods in the economy, no matter how many years you have owned a home. Being prepared and working out solutions ahead of time can help protect you should the market change.

Should you need assistance with your variable-rate mortgage in Ottawa, contact the Mills Team to set up an appointment and get the solutions you need.