Interest rates canada

The advantage of debt paydown over investing grows day by day, says Rob Carrick in this look at how Canadians need to rethink their finances.

You can’t avoid a negative real rate of return if you park money safely. Stocks? The S&P/TSX Composite Index was down 3.3 per cent for the year to June 10, and the S&P 500 was down about 18 per cent. Expected rate hikes in the next six months could increase that rate to nearly 6 per cent. If you have floating-rate debt like a line of credit, floating rate loan or adjustable-rate mortgage, your cost of borrowing is at risk of increasing on each Bank of Canada rate-setting date. A competitive HELOC rate is your lender’s prime rate plus a markup of 0.5 of a percentage point. That’s a big spending bump for a household already paying more for gas, groceries and lots more. The next date the bank could raise rates is July 13. And what percentage of household income does my total debt account for? But investing was the choice that produced gains you could wrap your hands around. If you had some spare cash, using it to invest was by far the more rewarding choice over paying down debt. We’ve seen just this sort of market environment last Friday and on Monday. To counter inflation, interest rates are rising at an alarming pace.