Understand how interest rate changes can affect your financial situation and learn how to adapt to these changes. Discover strategies to minimize the impact and make informed decisions to protect your savings.
Bank of Canada raised rates again by 25 basis points?
https://financialpost.com/news/economy/bank-of-canada-hikes-interest-rate-5-july
What does that mean? Well in basic terms 1 basis point is 1 / 100th of 1 percent. So, they raised the rates by .25 percent.
Bank of Canada (BoC) has a current rate of 5.00 percent. Prime lending rate is what your bank will offer you as it's a spread. It's BoC plus a small percentage rate of their own. Banks are in the business to make money.
Most good lines of credit now sit in the percentage of of 7 to 9 percent for "well qualified" people. This means excellent credit.
To put that in basic terms - let's say you owe 400,000 on a variable mortgage. Your payment just went up 400,000 x .0025 / 12 in simplest form. That means without any compounded interest, as usually mortgages are compounded semi-annually, your payment just immediately went up another 83.50 or so per month. That's the bank of canada rate hike - interest alone impact on your mortgage payment. 400,000 is your principle owing, .0025 is the 25 basis point increase and the division by 12 is 12 months in a year.
Why is the Bank doing this? It's to attempt to curb inflation. Inflation is basically that today's dollar buys less than yesterdays dollar. It's not that items are more expensive per se. It's just that today a dollar buys less than it did yesterday or two years ago.
An alternative theory is that despite the raising interest rates, there are too many other factors at play. These are called externalities... Basically outside forces. Despite the best interests of curbing inflation, it's that the global economy and supply chain is affected so much, input costs of skyrocketed. So that banana you buy is so expensive because of transportation costs have gone up as well as local wages.
That said, what can you do? Look to your variable expenses. These include such things as cellular telephone, cable, subscription services. Can you cut your subscriptions down? I re-negotiated with Telus for example and reduced my internet by 50 dollars a month. Over 2 years, that's 1200 in savings.
By doing simple things, you can actually impact your credit as well as reduce your monthly expenditures.
