How Are Young People Affected by Rising Interest Rates?
Written by Kelley Keehn

Friday, November 2nd, 2018

When interest rates are on the rise, some or all of your debt gets more expensive. And that can mean less money in your pocket.

Right now, Canadians owe around $1.71 for every dollar we bring in. To put that into perspective, we only owed around 66 cents for each dollar in the 1980s. Why? Interest rates were at an all-time high then. The incentive was to save and not take on debt by doing things like renovating your kitchen.

Even in a low rate environment, with interest on debt being cheap, money was tight for many people, with over 50% saying they're $200 or less from not being able to pay the bills. A new release is reporting that a third of Canadians feared bankruptcy even before the recent rate hike.

How Are Young People Affected?

If you have a line of credit or variable rate mortgage, you feel the pinch as soon as interest rates go up.

Shannon Lee Simmons, Certified Financial Planner and founder of the New School of Finance, says that rising interest rates may hit younger folks and families the most, especially those with floating-rate student loans.

"Young people may be living on a tight budget to begin with, even an extra $50 a month in interest matters. The best thing to do if you have floating-rate debt is to try to find a way to pay it down so that future rate hikes don't impact you as much."

How Much Are Interest Rate Increases Costing You?

According to Ratehub.ca, if a person had a variable rate mortgage balance of $400,000 since July 2017, as of October 2018, they would have seen their monthly mortgage payments increase by $205 over the previous 15 months. Further rate hikes of 0.25% could increase monthly mortgage payments by $53, to a total of $258.

If you'd like to know the impact of an interest rate hike on your own debt, check out the calculator at the end of this CBC article.

Money Moves to Consider

  • Get online and crunch the numbers. Don't think an extra dollar or two per day can make a difference in slashing your debt? It can. Find out how much with free tools and calculators from Credit Canada and the Financial Consumer Agency of Canada.
  • If you're sitting with a variable mortgage rate and you're worried about creeping interest rates, consider locking into a fixed 5-year term or longer.
  • Stay ahead of your payments and add them to your calendar reminders.

If you need the help of a pro, you can also reach out to a non-profit credit counsellor or Certified Financial Planner.

Share now

Learn about the great features of Tangerine's Mortgage, Home Equity Line of Credit or RSP Loan.

Related posts

Should I Get A Variable or Fixed Rate Mortgage?
Should I Get A Variable or Fixed Rate Mortgage?
September 13th, 2022 | Kelley Keehn
How much do you need to buy a home in Canada? A city-by-city guide
How much do you need to buy a home in Canada? A city-by-city guide
July 29th, 2022 | Ethan Rotberg
So you're a homeowner. What's your next move?
So you're a homeowner. What's your next move?
June 15th, 2022 | Andrew Cruz
Legal Stuff
This article or video (the “Content”), as applicable, is provided by independent third parties that are not affiliated with Tangerine Bank or any of its affiliates. Tangerine Bank and its affiliates neither endorse or approve nor are liable for any third party Content, or investment or financial loss arising from any use of such Content.
The Content is provided for general information and educational purposes only, is not intended to be relied upon as, or provide, personal financial, tax or investment advice and does not take into account the specific objectives, personal, financial, legal or tax situation, or particular circumstances and needs of any specific person. No information contained in the Content constitutes, or should be construed as, a recommendation, offer or solicitation by Tangerine to buy, hold or sell any security, financial product or instrument discussed therein or to follow any particular investment or financial strategy. In making your financial and investment decisions, you will consult with and rely upon your own advisors and will seek your own professional advice regarding the appropriateness of implementing strategies before taking action. Any information, data, opinions, views, advice, recommendations or other content provided by any third party are solely those of such third party and not of Tangerine Bank or its affiliates, and Tangerine Bank and its affiliates accept no liability in respect thereof and do not guarantee the accuracy or reliability of any information in the third party Content. Any information contained in the Content, including information related to interest rates, market conditions, tax rules, and other investment factors, is subject to change without notice, and neither Tangerine Bank nor its affiliates are responsible for updating this information.
Tangerine Investment Funds are managed by Tangerine Investment Management Inc. and are only available by opening an Investment Fund Account with Tangerine Investment Funds Limited. These firms are wholly owned subsidiaries of Tangerine Bank. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.