​How to Take Advantage of the Current Low Interest Rates

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  • How to Take Advantage of the Current Low Interest Rates

February 23, 2021

The COVID-19 pandemic has had a huge and mostly negative impact on the global economy. Millions of people have lost jobs and countless businesses have either closed or are struggling to survive as the world copes with the fallout from the deadly virus. 

However, one consequence of the pandemic-related downturn has been a dramatic decline in the cost of borrowing money. Many central banks have slashed interest rates to historic lows to stimulate faltering economies and promote spending.

The Bank of Canada made two quick cuts to its benchmark interest rate in the early weeks of the pandemic and has indicated that rate could remain at a miniscule 0.25 percent until 2023. A similar situation exists in the United States. 

Ultra-low interest rates aren’t a benefit to savers, but they do present a financial opportunity for some. Those who hold debt of any kind, whether it be a car loan or a mortgage, can take advantage of the current situation and improve their financial outlook. Here’s how. 

Consolidate your debts 

Whatever you owe money on, whether it’s a car, a student loan, credit card debt, or anything else, now is a great time to consolidate your debts under one single low-rate loan. Not only will this simplify your debt repayment, but it will also accelerate the whole process by allowing you to put more towards the principal each month. If you own property, you may be able to get a more favourable interest rate from your financial institution by obtaining a home equity loan or home equity line of credit.  

Refinance your mortgage, or other major loans 

If you’ve owned property for more than a year, chances are that interest rates have gone down since you purchased. While refinancing will cost you in penalty fees if the term of your original mortgage isn’t complete, you’ll end up saving enough on interest over the long run to more than make up for it. In fact, if the rate you get is low enough, you could recoup the cost of those fees within the first year of your new mortgage. 

The same thinking applies to any loan, not just a mortgage. If you’ve got a car loan or student loan, ask your financial institution for a more competitive rate, and shop around to see whether you can do even better elsewhere. 

Buy property 

Whether you’re shopping for your first home, a new home, a vacation home, or a rental property, low interest rates make it easier to afford mortgage payments on any new property. If you’re upgrading to a new home and live in an area where property values are strong, it’s a good time to trade up and, if possible, lock in a low rate on a home you might not otherwise be able to easily afford. However, bear in mind that to qualify for a mortgage, you must still be in a strong enough financial position to afford your mortgage payments at the Bank of Canada’s qualifying rate, which is currently 4.79 percent. 

Needless to say, if the economic uncertainty of the COVID-19 pandemic has put you in a precarious financial position, now is probably not the right time to commit to buying new property. Even if you’ve been fortunate to avoid financial hardship, don’t be lured into taking on more debt than is wise: examine your budget closely before purchasing any property, or borrowing any sizable amount. 

Renovate your current home 

If you’ve been considering a major renovation project, especially one that will enhance your home’s energy efficiency and reduce operating costs, now might be the time to take the plunge. It’s a financial win-win: you’ll get a low-interest loan to pay for a project that ultimately increases your home’s resale value. You’ll also end up with a more modern, comfortable home, a valuable thing when we’re all spending a lot of time cooped up inside our houses. 

Invest your interest savings 

Maybe you’re paying less interest on variable-rate loans that have seen steep rate declines. Perhaps you’ve already refinanced your mortgage. If you’re saving on interest anywhere, you’ve suddenly got a little more money in your bank account at the end of every month. Instead of using that money to pay down debt more quickly, consider investing in your RRSP. If you’ve got contribution room, this is another financial win-win, because boosting your contribution has the added benefit of decreasing your income tax bill.