Consumers in the Okanagan should exercise caution when considering taking on debt in the wake of the Bank of Canada’s key interest rate cut, says one financial institution.
“The Bank of Canada’s 25 basis point drop in the bank rate to 0.50 per cent doesn’t mean B.C. residents should start borrowing excessively, especially in terms of personal mortgages and lines of credit,” said Paul Brodeur, vice-president of wealth management at First West Credit Union’s Valley First division.
“With interest rates at rock-bottom lows, money is inexpensive to borrow right now, but, eventually, interest rates will go back up.”
While a high debt load might be serviceable now, Brodeur says it will lead to future pain when the rates rise.
“And they will rise,” he says.
Beyond credit card debt, lines of credit could also be particularly problematic if borrowers aren’t disciplined, said Brodeur.
“People can become too comfortable increasing their debts using a line of credit secured by the value of their home, especially with housing values in many parts of the Okanagan rising so dramatically in the last decade or so.”
Brodeur says the need for prudent financial planning has never been more important.
“With the loonie tumbling, high household debt, uncertainty around about whether the Canadian economy is in recession and uncertainty around whether the housing market is inflated, it’s especially important to make sure you’ve established a long-term financial plan,” he says.
“Anyone who doesn’t have clear financial goals needs to set up a meeting with an expert who can help them establish a financial road map.”