Interest Rates will Remain Low, How Does that Affect Borrowing

The speculation is over. Analysts and experts can stop talking about “what if” interest rates are hiked by The Bank of Canada, because they’re not going to be. Mark Carney, governor of The Bank of Canada, said today that due to the uncertainty of the global economy, the bank will keep the interest rates low. While this news obviously has all Canadian homeowners rejoicing, it also has them asking some questions about what to do now for their borrowing needs.
Credit cards have always seemed like a necessary evil, something that many Canadians needed to rely on because they needed to borrow money from somewhere and interest rates were simply too high. But, when the prime rate is so low, it makes so much more sense to borrow against your home equity with a home equity line of credit. With a home equity line of credit, you’ll pay prime plus half to one full percentage point. With the prime sitting at 3% right now, that’s still only 4% that you’ll be paying on your line of credit. Compare that to the 19% or 21% that a credit card will cost you in interest, and it’s easy to see which way the smarter money travels.
Remember that home equity lines of credit aren’t so that you can finally go on that vacation, or drive that car you’ve always imagined yourself in. They are one of the smartest ways to borrow, but they’re still only to be used when you’re stuck and absolutely must borrow. Remember that it’s still a loan, and you still must pay it back. But while you’re at it and you have that line of credit at your disposal, why not pay off those credit card bills too? While it’s still borrowing to pay off debt, you probably won’t need your entire home equity line of credit to pay off the plastic; and you’ll be exchanging an extremely high interest rate for an extremely low one.
Interest rates are low and, as confirmed today by The Bank of Canada, they’re going to stay low. And while this is great news for anyone looking to take out a mortgage, it’s also great news for anyone who’s looking for a smarter way to borrow.