Can you believe that in 1987, Fran and I felt lucky when we got our first mortgage at 10% interest! Wow; it was only in the early 1980’s that some people were renewing their mortgages at more than 20% interest. Imagine! It doesn’t seem to make any sense that today you can get a 5-year mortgage for about 3% interest.

There are several reasons why interest rates fluctuate so much; I’ll leave that for the economists to provide you with the boring details.

What I can tell you is that the Bank of Canada has been talking to Canadians about the effects of higher interest rates for a few years now. We’ve known for several years that since the banking crisis of 2008, Canadians have average debt loads that are significantly higher than what they were before the crisis. Bigger mortgages and bigger lines of credit are the main culprits, I think.

Consider this; if a typical Canadian family has a $250,000 mortgage at 3% interest and plans to pay off their mortgage in 25 years, their monthly interest payments amount to about $620/month. Of course, you must also pay on the principal debt as well as property taxes to determine your full monthly payment. If interest rates increase by just 1% at the time you renew your mortgage, your interest costs will increase by about $200 a month. A 2% increase will mean $400 extra interest you owe each month. You get the picture. And if your mortgage is twice as high, you can double the interest payments yet again.

Almost every financial meeting and conference I have attended over the past three months has talked about the conditions forming for what is believed to be the beginning of higher interest rates. Most experts feel the first modest increase may take place in the second half of next year. No one believes rates are headed back to levels seen in the 1980’s but you can see how impactful it would be with just a 1%-2% increase.

So if it feels like a struggle to make all your payment obligations today, chances are it will only become more difficult if you are unable to realize some cost savings in your everyday spending patterns. If you think you need help, I suggest you talk to your financial advisor and ask for a monthly spending planner to help you budget your take home pay more effectively.