OTTAWA, ONTARIO -- (Marketwire) -- 10/02/12 -- In order to help Canadians prepare for a possible increase in interest rates, the Financial Consumer Agency of Canada (FCAC) has developed a Debt Check-Up tip sheet to help consumers deal with some risks in their budgets.
"While interest rates are now at all-time lows in Canada, it is likely that they will rise sometime in the future. Canadians need to look at how much debt they are carrying, particularly in the amount of their mortgages, home equity lines of credit (HELOCs), personal lines of credit and variable-rate personal loans," says FCAC Commissioner Ursula Menke. "By doing a debt check-up, consumers can take a close look at their present debt burden and think about whether they would be able to handle it if their payments increase."
As part of their debt check-up, consumers are urged to look at their current total monthly payments, which they can list on the worksheet; they should then talk to their lenders to find out how much their payments could increase if interest rates go up. They can then determine whether the total would still be within their comfort zone and consider their options to have more money available to repay debts and save for their goals.
If mortgage rates increase
As an example, a couple with a variable interest-rate mortgage of $277,658 at 3.1% interest: Current monthly payment: $1,405 If interest rates rise, the couple's monthly payments will also increase. Possible new monthly payment: 0.5% interest rate increase: $1,477 1% interest rate increase: $1,550 2% interest rate increase: $1,702 3% interest rate increase: $1,861
In dollar terms, the couple's mortgage payments could increase anywhere from $72 per month (or $864 per year) to $456 per month (or $5,472 per year).
Mortgages and personal loans are often only part of household debt. Other payments such as lines of credit, will also rise with mortgage rates.
With educational materials and interactive tools, the Financial Consumer Agency of Canada (FCAC) provides objective information about financial products and services to help Canadians increase their financial knowledge and confidence in managing their personal finances. FCAC informs consumers about their rights and responsibilities when dealing with banks and federally regulated trust, loan and insurance companies. FCAC also makes sure that federally regulated financial institutions, payment card network operators and external complaints bodies comply with legislation and industry commitments intended to protect consumers.
You can reach us through FCAC's Consumer Services Centre by calling toll-free 1-866-461-3222 (TTY: 613-947-7771 or 1-866-914-6097) or by visiting our website: itpaystoknow.gc.ca.
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