How do you manage rising interest rates?

For example, you may have a higher income, more savings, and could make use of an offset account . Offset accounts help reduce the amount of interest charged on your home loan, and could offset the impact of an interest rate increase.

How do you respond to rising interest rates?

Topping the to-do list, investors should reduce long-term bond exposure while beefing up their positions in short- and medium-term bonds , which are less sensitive to rate increases than longer-maturity bonds that lock into rising rates for longer time periods.

Who makes money when interest rates go up?

With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates. Central bank monetary policies and the Fed's reserver ratio requirements also impact banking sector performance.

Is it better to buy when interest rates are high?

It depends on your personal situation. If you're comfortable with the amount of money you'll pay on a mortgage with a higher interest rate, buying may be a good choice . Consider your finances before making a decision and only buy a home if you're sure you can afford it.

What goes down when interest rates rise?

But when interest rates rise, consumer spending and demand decline , and inflation is somewhat tempered.

How to make money from rising interest rates?

You can capitalize on higher rates by purchasing real estate and selling off unneeded assets . Short-term and floating-rate bonds are also suitable investments during rising rates as they reduce portfolio volatility. Hedge your bets by investing in inflation-proof investments and instruments with credit-based yields.

Do insurance companies do well when interest rates rise?

Overall profits for insurance companies usually increase in fairly direct proportion to increases in interest rates .

Who benefits and who is hurt when interest rates rise?

Who benefits and who is hurt when interest rates rise? Corporations with immediate capital construction needs are worse off . Households with little debt, saving a significant fraction of annual income for retirement, are better off. The federal government running persistent budget deficit is worse off.

What happens to my investments when interest rates rise?

Higher interest rates tend to negatively affect earnings and stock prices (with the exception of the financial sector). Higher interest rates also mean future discounted valuations are lower as the discount rate used for future cash flow is higher.

Who suffers when interest rates rise?

Rate hikes make it more expensive to borrow, discouraging consumers from making large purchases and companies from hiring and investing .

What stocks will go up when interest rates go down?

Looking for stocks in utilities, energy, healthcare and other blue-chip defensive stocks could result in dividends as well as potential appreciation. Growth stocks: Depending on your risk tolerance, growth stocks might make a good choice with Fed rate cuts ramping up.

Who really controls interest rates?

The Federal Reserve determines the price of borrowing money through one of its primary interest rates, the fed funds rate. The fed funds rate influences various financial decisions and products, such as credit card rates and mortgage rates.

How to make money during high inflation?

Several asset classes perform well in inflationary environments. Tangible assets, like real estate and commodities, have historically been seen as inflation hedges. Some specialized securities can maintain a portfolio's buying power, including certain sector stocks, inflation-indexed bonds, and securitized debt.

Managing your money when interest rates rise (2024)

From: Financial Consumer Agency of Canada

The Financial Consumer Agency of Canada (FCAC) has expectations for federally regulated financial institutions. FCAC expects them to help you if you're struggling to pay your mortgage due to exceptional circ*mstances.

Learn more about paying your mortgage when experiencing financial difficulties.

When a rise in interest rates may affect you

A rise in interest rates often means that it will cost you more to borrow money.

A rise in interest rates may affect you if:

you have a mortgage, a line of credit or other loans with variable interest rates
you’ll need to renew a fixed interest rate mortgage or loan

Your financial institution could also increase your interest rate if you don’t make your payments on time.

How interest rates work

Interest rates rise and fall over time. If you’re borrowing money, interest is the amount you pay to your lender to use the money. The lender uses the interest rate to calculate how much you need to pay to borrow money.

Financial institutions set the interest rate for your loan. This could be a mortgage, a line of credit or another type of loan.

You’ll find your interest rate in your loan agreement. Your financial institution must also provide you with certain information about interest rates on your loan.

Learn more about your right to information when you borrow money.

Fixed and variable interest rate loans

When you get a loan, your financial institution may offer you a fixed or a variable interest rate.

Dealing with a rise in interest rates

Pay down your debt as much as possible to deal with a rise in interest rates. If you have less debt, you may be able to pay it off more quickly. This may help you avoid the financial stress caused by higher interest rates and bigger loan payments.

You may deal with a rise by using these tips:

reduce expenses so you have more money to pay down your debt
pay down the debt with the highest interest rate first. This may allow you to pay less interest over the term of your loan
consolidate high interest debts, such as credit cards, into a loan with a lower interest rate
avoid getting the maximum mortgage or line of credit that a lender offers you
avoid taking on unnecessary debt with things you want but don’t need
avoid borrowing more money as it could limit your ability to save for your goals
find ways to increase your income to help you pay down debt
make sure you have an emergency fund to deal with unexpected expenses. This may help you cover higher loan payments to avoid penalties

Get tips on paying down your debt and making a plan to manage your debt.

Trigger rates and negative amortization

A variable interest rate mortgage with fixed payments may be riskier than you expect. When interest rates rise, more of each payment automatically goes toward interest costs.

You could end up in a situation where none of your payment goes toward paying down the principal. Instead of paying down your mortgage, the total amount you owe on your mortgage will increase. You may have to contribute more capital to avoid problems renewing your mortgage. Acting early is important to prevent the situationfromgetting worse.

If you have a variable interest rate mortgage with fixed payments, contact your financial institution as soon as possible to discuss your options.

You may have a mortgage or a loan with a variable interest rate and fixed payments. When interest rates rise, you may reach your trigger rate.

Your trigger rate is the interest rate at which your mortgage or loan payment only covers interest costs. When you reach your trigger rate, none of your payment goes toward paying down the principal. This means that your payment doesn’t cover the full amount of interest for that period.

When this happens, your bank will generally add the unpaid interest to the balance you owe on your mortgage or loan. This brings you into negative amortization.

In cases of negative amortization, unpaid interest builds up and the total amount you owe will continue to increase. If you don’t take action, you’ll owe more money than you expected when you agreed to the mortgage or loan.

The best way to find out your trigger rate is to review your mortgage or loan agreement. You may also contact your financial institution. They’ll be able to calculate the exact rate for you. They’ll also be able to let you know your options if you reach your trigger rate.

Impact of a higher interest rate on your loan payments

The following examples show the impacts of an increase in interest rates on your:

mortgage
personal loan
credit card

How a rise in interest rates could affect your monthly mortgage payments

Suppose you have a mortgage of $300,000 with a variable interest rate and a 25-year amortization. Your interest rate is currently 5% and it goes up to 6.5%. Your mortgage payment will go from $1,745 to $2,009. An increase of $264 a month.

Figure 1: Example of monthly payments for a mortgage of $300,000 with an amortization of 25 years at various interest rates

Managing your money when interest rates rise (1)

Text version: Figure 1

Interest rate	2.0%	2.5%	3.0%	3.5%	4.0%	4.5%	5.0%	5.5%	6.0%	6.5%	7.0%
Monthly payment	$1,270	$1,344	$1,420	$1,498	$1,587	$1,660	$1,745	$1,831	$1,919	$2,009	$2,101

Use the Mortgage Calculator to see the impact of an interest rate increase on your mortgage.

How a rise in interest rates could affect your personal loan monthly payments

Suppose you have a personal loan of $10,000 with a variable interest rate and a 2-year term. Your interest rate is 14.99%.

Your loan payment will increase by $24 a month if interest rates rise by 5%. That adds up to $552 more in interest over the 2 years.

Figure 2: Example of monthly payments for a personal loan of $10,000 with a 2-year term at various interest rates

Managing your money when interest rates rise (2)

Text version: Figure 2

Interest rate	9.99%	14.99%	19.99%	29.99%	39.99%
Monthly payment	$461	$485	$509	$559	$612

When a rise in interest rates could affect your credit card payments

There are times when fixed interest rates on credit cards could also rise.

For example, you have to make your minimum monthly payments by the due date. If you don’t, your financial institution may increase your interest rate. In the case of credit cards, the rate will usually increase by 5%, but the increase may be higher.

Short-term promotional financing or deferred interest offers may be another reason that your fixed interest rate may increase. Make sure you know how long an offer lasts. This way, you’ll expect the increase in your minimum monthly payments once it ends.

Banks and other federally regulated financial institutions must notify you before an interest rate increase takes effect.

Learn more about your right to information when getting a credit card.

Reviewing your budget with your new debt payments

If interest rates rise and your debt payments increase, you may need to review and adjust your budget.

To prepare yourself, try the following:

talk to your lenders to find out by how much your payments will increase
look at how the higher payments will impact your budget and your ability to save for your goals
see how you may reduce expenses or earn more money to pay off your debt faster

Use the Budget Planner to create or review your budget.

Make your budget and review it. If you expect challenges in making your payments, be proactive and don’t wait to seek help. Contact your financial institution to discuss your options.

They may be able to offer temporary accommodations such as:

making special payment arrangements
allowing you to skip a payment on your loan
mortgage payment deferrals

Learn more about mortgage relief options.

You may also want to talk to a credit counsellor. They may help you explore the different solutions that are available to you.

Learn more about getting help from a credit counsellor.

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Date modified:: 2024-02-02