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Bank of Canada Hikes Interest Rate
As expected the Bank of Canada, raised its key lending rate for the first time in 7 years by 0.25% to 0.75%.  Many clients are asking the same question: how will this affect me and my family?
 
You may be paying interest on outstanding debt or receiving interest, dividends and capital gains on investments or a combination of both. This means that each situation will be affected differently, in accordance with the unique amount of debts and investments.
 
As a borrower, the cost of capital is going up, and for lenders, their income is increasing.  As a lender, the interest rate hike is good news. 
 
The more complicated implication will be the reaction by equity markets.  As with most economic and financial changes, there will be winners and losers.
 
Here are a few things you should know
 
If you have a GIC or a mortgage with a fixed term, your rates will stay in effect until maturity or renewal, and be unaffected until then.  Variable rate mortgages, Home Equity Lines of Credit (HELOC) and high interest savings accounts will see the Bank of Canada rate implemented immediately, and you will start to receive or pay higher interest.
 
The effect of increased interest rates on the stock market is not as uniform.  For example, financial institutions, such as banks and insurance companies, will typically benefit and be more profitable when rates are higher.  Other companies that borrow to finance their production, like utilities with long-term bonds, will face higher costs that could lower profits.  
 
What Does This Mean For You
 
If your portfolio is dominated by a small number of large stock holdings, you might experience some short-term volatility and risk, since profitability drives share price, all other things being equal.
 
However, if you have some locked-in investments (GICs, bonds) and variable investments (Mutual Funds, ETFs, stocks), have domestic and international exposure, and diversification across multiple industry sectors you will see that an interest change is a situation to monitor, and not a reason to act rashly or veer to far from existing financial plan.

There would be no need to undo years of planning and progress toward retirement plans; more so, your situation should be monitored and adjusted if and when that is necessary.  Keep in mind, the increase is small, and interest rates continue to be low when compared to historic levels.
 
If your are renewing or refinancing your mortgage, now would be a good time to discuss your options.
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