Smart Advice Managing Debt

How to stay ahead of changing interest rates

Borrowing costs may be affecting your finances – here’s what you can do

CIBC Mar. 10, 2025 5-minute read

Whether it's a mortgage for a house or a line of credit to cover a major expense, many of us borrow money to help achieve our goals. The cost of borrowing — how much interest you pay on top of what you borrowed — depends a lot on the interest rates set by the Bank of Canada (BOC). For a period, these rates were very high to combat inflation, leading to increased borrowing costs for many Canadians. With inflation gradually coming down, the BOC has started to cut interest rates. This move is aimed at encouraging spending and investment by lowering borrowing costs, which can offer some relief to those with existing debt or new borrowing needs.

To manage the impact of changing interest rates, it’s important to understand how they might affect your financial situation, especially your debt, monthly payments, and what you can do to adjust your budget accordingly.

What lower rates mean for you and your money

Lower interest rates can provide financial breathing room, but their impact varies depending on the type of debt you hold.

Lines of credit: As interest rates decrease, so do the payments on your line of credit if it’s linked to the BOC’s rate. This means more of your payments can go towards paying down the principal rather than interest.

Mortgages: If you have a variable-rate mortgage, your payments may decrease with each rate cut. For those with fixed-rate mortgages, while your payments remain steady until renewal, you may have the opportunity to lock in a lower rate when the term ends.

Other debts: Many other types of loans, like credit cards and car loans, usually have fixed rates. These debts might be immediately affected by rate cuts, but refinancing could be an option to explore lower-cost alternatives.

Five steps you can take now to handle higher interest rates

If you have a clear picture of your financial situation and a solid plan in place, you'll be in a much better position to deal with the impact of changing interest rates. Here are steps you can take now to make sure you're on the right track.

1. Review your budget

Lower interest rates may reduce your debt payments, freeing up some cash in your budget. Consider redirecting these savings towards paying off other debts faster or increasing your savings for your financial goals. An easy way to keep track of your finances is by using an online Budget Calculator.

2. Pay down high-interest debt first

Start by looking at your debt and prioritize paying off anything with higher interest rates, like credit cards or personal loans. By not prioritizing high-interest debt, a huge chunk of your money will be wasted on the accumulated interest. For example, if you only pay $150 per month for a $6,000 balance accruing 20% interest, it will take 6 years and cost an extra $4,000 in interest to pay off that card. You can explore your options.

3. Keep an eye on your borrowing costs

Stay on top of your variable rate debt, as these will all be affected by changing interest rates. This includes student debt, lines of credit, home equity lines of credit and variable-rate mortgages.

Whether your rate increases right now or it affects you later down the line, revisit your budget to make sure you’re prepared for extra expenses — like renewing your fixed-rate mortgage. You can explore our client stories.

4. Revisit your investment strategy

Lower interest rates may enhance the performance of certain investments. It may be a good opportunity to review your portfolio with an advisor and explore how you can benefit from this change in the interest rate environment. With changing rates, certain types of investments may become more attractive. Connect with our advisors about how higher interest rates can benefit your investment portfolio.

5. Explore debt consolidation

Debt consolidation combines multiple loans into one, offering benefits such as lower interest costs, simplified payments, and faster debt repayment. You can explore your options.

Get expert advice

If you find yourself struggling to meet your debt obligations or require guidance to make the most of changing interest rates, reaching out to us can be a proactive step.

Our advisors are here to assist you in navigating your financial situation and developing a tailored plan to suit your needs. Whether it’s restructuring your debt, exploring refinancing opportunities, or managing your overall finances, we can support you in achieving financial stability. Learn more About dealing with debt..

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How to stay ahead of changing interest rates

What lower rates mean for you and your money

Five steps you can take now to handle higher interest rates

1. Review your budget

2. Pay down high-interest debt first

3. Keep an eye on your borrowing costs

4. Revisit your investment strategy

5. Explore debt consolidation

Get expert advice

Get help creating the life you want

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