The Bank of Canada has given the country a grace period to prepare for rising interest rates. use it wisely. It is now expected that the central bank will start raising rates in early March or April. This gives you ample time to figure out how sensitive you are to higher rates on your mortgage and other loans. Your investments may also require some attention, including stocks, bonds and guaranteed investment certificates. Here are five things to note in the coming weeks so that you can be prepared for rate hikes in the near future: Nail a Great Mortgage Rate While You Can Spring pickup in the housing market is still far away, but it’s never too early for home buyers to lock in a mortgage rate with a bank or mortgage broker. It’s standard for lenders to offer a 90- or 120-day rate hold, which means you’ll have until the end of May at the latest to close a deal. Also, get yourself pre-qualified for a mortgage. This will give you confidence that your lender will actually approve your application for a mortgage at your lock-in rate. Jump on your next mortgage renewal Mortgage renewals in recent decades have mostly offered low rates, or at least pleasant surprises in the form of the status quo. With rates increasing, you need to be more proactive with renewals. Waiting until the renewal date is close could cost you a rate increase that you could have avoided with earlier action. Lenders typically let you renew a mortgage 120 days before maturity without penalty, but some may offer a 180-day window. If the renewal rate you’re offering looks uncompetitive, step back and see what competitors will offer. If you worry about the cost of your variable-rate mortgage as rates rise, find out what rate you can get if you lock in a fixed-term mortgage. Locking in a fixed rate may not save you money – depending on how much the Bank of Canada raises rates during your mortgage term. But a fixed rate saves you from having to stress your way through all the rate-setting announcements that come along in the next year or two. Familiarize yourself with your loans – students, especially A loan taken years ago may suddenly cost you more every month. Now is the time to find out what you are up against. Let’s use student loans as an example of two types of loans—one with a fixed rate and one with a rate that floats with a more commonly used benchmark called the prime rate, which is a measure of a bank’s best customers. Refers to the final low rate for. Ubder Canada student loan, in the program, there are fixed rate loans at Prime Plus two percentage points and fixed floating rate loans on Prime, which now stands at 2.45 percent. If the Bank of Canada raises rates by an estimated 0.25 of one point in March or April, the bank’s prime rates will rise to 2.7 percent. If you have a fixed rate on the loan, an increase in incoming rates is a non-event. With a floating-rate loan, you will pay more. Find out how much you’re not surprised by higher-than-expected loan payments after March. Apply tourniquets to your investment portfolio as needed The new rising rate paradigm is already hurting the price of bonds and conservative dividend-paying stocks like utilities. Year-to-date, the Canadian bond market is down 3 per cent, while utility stocks as a sector are down about 3.6 per cent. Short-term bonds maturing in five years or less will shrink less as rates rise. Corporate bonds are expected to be slightly more flexible than government bonds. If you hold a conservative dividend stock for earnings first and foremost, price fluctuations due to rising rates mean little. Maybe if you are a long term investor then buy more on any price drop. Become a GIC ninja That is, be ready to strike if you see an attractive rate. Rate competition among GIC issuers has increased recently, partly because of the rising rate outlook and partly because they are battling each other to raise money that can be lent to customers at higher rates. Canadian government five-year bonds have yields of 1.7 percent or more these days, but the Canadian Imperial Bank of Commerce has promoted the five-year GIC to 3 percent, which is a premium rate right now. CIBC offered 3.25 percent off earlier this year—so you need to jump on the deals when you see them.
Rob Carrick The Globe and Mail February 1, 2022
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