Jul 13, 2016
Pattie Lovett-Reid: Don't wait for day of reckoning to clean up your finances
ANALYSIS: It is decision day for the Bank of Canada and while virtually nobody expects a rate hike, the fact is that it might not take much of a rise in rates to be damaging for Canadians -- especially first-time homebuyers who are notoriously stretched to the limit.
There’s no reason to stand by waiting for the inevitable day of reckoning. Now is the time to get your financial house in order.
Here are a few tips to save yourself some grief whenever rates rise:
1. Consider locking into a five-year mortgage today. Sure, you could save some money sticking with a variable rate mortgage but I’m talking about taking out a form of mortgage protection. There are so many wild cards in life and worrying about a pricier mortgage payment doesn’t need to be one of them. Especially given this low interest rate environment.
2. Rates are not going higher because the economy isn’t resilient enough to handle it. With an economy not firing on all cylinders, your job probably isn’t as secure as you might think. Consider building up your emergency fund. That means tucking away six-to-nine months’ worth of living expenses to bridge the period of time you spend looking for a new job. Leave that money in cash or near-cash equivalents so you have access to it when you need it. No one tends to focus on the unemployment rate in Canada until you become part of the statistic.
3. Get a credit card - now. Don’t use it. Keep it for emergencies -- real emergencies because when you actually need to get a credit card you might not qualify for one especially if you are unemployed or overburdened with debt. While you’re at it, I would consider a line of credit – again for emergency purposes.
4. Update your current budget projections and include a higher mortgage rate. That will serve as a cushion and will force you to live below your means; and should rates go higher you will know ahead of time that you can handle it.
5. Don’t take on more debt. Moreover, make a concerted effort to pay down your most expensive debt. Not the one that is the largest but the one that is costing you the most. It is time to shut your wallet.
Here is the good news: time is likely on your side. Rates aren’t likely to head higher for a while and that provides the golden opportunity to have time and compounding work for you instead of against you.
As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV
