This Wednesday could be an "oh crap" moment for some Torontonians who rely on a line of credit, personal finance experts say.
The Bank of Canada is set to raise its overnight rate — traders are about 90 per cent certain of a 0.25 per cent rate hike — and the big banks and other financial institutions will likely increase interest rates as a result.
- Mortgages won't be only problem for many Canadians as rates rise
- Bank of Canada's expected rate hike could further cool GTA real estate, experts say
Simply put, it will cost you more to borrow money.
So, how can you handle the change? Here are five suggestions:
Pay down your debt
You've heard that before, but financial planner Shannon Lee Simmons says it's worth repeating.
Statistics Canada found Canadians owed $1.67 in consumer credit, mortgages and non-mortgage loans for every dollar of household disposable income in the first quarter of 2017, up slightly from the previous year even though the Bank of Canada has issued a series of warnings.
"Everybody should really focus on paying off that debt now, to make sure they can still take advantage of those low rates," she says.
The bank's rate hike will be scariest, she says, for those who find themselves over-leveraged and owing tens of thousands of dollars.
"Chances are you may not be able to pay that off within the year and who knows where rates might be a year-and-a-half, two years from now," Simmons said.
Call your lender
It's time you have the talk.
Simmons says how the change affects you will hinge on the structure of your line of credit, loan or mortgage.
In some cases, for example, "your monthly expenses may not go up, but you might have that debt for a lot longer."
Jessica Moorhouse, who runs the personal finance-focused Mo' Money Podcast, says the hike may leave some realizing they've over-extended themselves.
"They'll have to answer to those choices," she said.
"It may mean consolidating so they can get a lower interest rate on some of their debts, it may mean cutting back," she said.
Have an emergency fund
Hopefully, Moorhouse says, those same people chose to set up an emergency fund with enough cash to cover three- to six-months worth of living expenses, which could allow some flexibility.
Hold off on that renovation
Moorhouse says banks have been heavily advertising lines of credit to new home owners looking to put their own stamp on their new place, with the assurance that investing in your home will bring in money down the line.
"I feel like the banks are always pushing that," she says.
However, she's not alone in questioning how much those renovations will pay off.
Real estate analyst and author Alex Avery recently told CBC News that taking out $20,000 to pay for a new kitchen or bathroom may be a mistake — especially as home equity lines of credit come with their own risks.
"Generally speaking, the returns are negative from a financial perspective," he said.
Hit the reset button
It's never a bad time to review your finances. But Wednesday may be a crucial time to re-evaluate where your money is going, Moorhouse says.
"This is a time to buckle down and take your money seriously, because things just got way more expensive for you."