Investors and newcomers brace up for a turbulent year. 

Investment tips for immigrants

Canadians have enjoyed record low interest rates for the last 10 years, and since the onset of the global pandemic, the Bank of Canada has even sliced it further to 0.25%. But the long honeymoon is about to be over, and interest/mortgage rates are expected to go up in 2022.

Due to rising asset and commodity prices as well as expectations for a better-than-expected economic growth in 2021 and 2022, the Bank of Canada has already signalled a rate hike.

What does a higher interest rate mean for you?

Investment tips for immigrants

A higher interest rate means borrowing money is going to be more expensive. This applies to everything, from car loans and student loans, to lines of credit, outstanding credit card balances and of course mortgages.

If you already own a home and are locked into a fixed mortgage rate, a higher interest rate won’t affect your mortgage payments for the term of your mortgage. When it’s time to renew, you may be doing so at a higher rate, which means less of your hard-earned money is going toward paying down your principal loan.

On the positive side, if you have investments or money parked in a high-interest savings account, you may enjoy higher returns.

Investment tips for immigrant entrepreneurs

When interest and mortgage rates increase, you may need to consider some new investment strategies. Here are some useful tips:

Invest in real estate now.

If you are interested in investing in real estate, it’s a good idea to consider investing early on in the year, because you may face higher borrowing costs later on in 2022.

Mortgage rates are still sitting near historic lows: The current average 30-year fixed mortgage rate climbed only one basis point, from 2.88% to 2.89% as of December 21. The current national average 15-year fixed mortgage rate moved up only three basis points, from 2.13% to 2.16%.

It’s important to note that the average 30-year fixed-rate home mortgage has the potential to climb near 4% by the end of 2022.

Ultimately, if you plan to make major purchases or engage in capital expenditures, you are better off closing the deal early.

Consider refinancing your home.

mortgage rates set to rise

You may also want to refinance your home and take advantage of the current interest rate. You will face a much higher monthly mortgage bill when your interest rate resets later in the year.

Pay off high debts.

If you’re carrying multiple debts, consider paying down the higher-interest ones first, since those debts are more expensive to carry.

Pay down your other loans as much as possible, while interest rates are still low. Remember, whether it’s a mortgage or another type of loan, a lower interest rate means more of your payment goes toward paying down principal.

Arrange home equity lines of credit (HELOCs) soon.

If you need extra cash and you have been planning to get a home equity line of credit (HELOC) or home equity loan, this is probably the best time to do so, since they are pegged to the prime rate.

HELOCs refer to a loan revolving source of funds, much like a credit card, which you can access as you need. Home equity loans, on the other hand, refer to a lump sum that you borrow against the equity you have built in your home.

Pay off your credit cards.

mortgage rates set to rise

It’s true that existing cardholders may not have to worry about their interest rates changing. However, card issuers may bump up interest rates if customers begin falling behind on monthly payments en masse.

It’s always advisable not to carry over large credit card balances. If you didn’t heed this advice before, you should now. It will also boost your credit score.[1]

Variable vs fixed rate.

Historically in Canada, those who have variable rates have ended up paying less interest over the course of their mortgage term. But it all boils down to your risk appetite.[2]

If you are able to keep a cool head even with some market turbulence, you can stick to a variable rate which is still at historic lows. But if you are the kind of person who prefers predictability, then you can opt for fixed.[3]

Your move.

mortgage rates set to rise

The market is always moving up or down. So are interest and mortgage rates. Now that you know the direction rates are going, you can now make your move.

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