How to Protect Yourself from Interest Rate Hikes

Interest rates are like the weather—unpredictable and sometimes stormy. One day, borrowing is cheap and easy. The next, rates are climbing, mortgage payments are going up, and homeowners are feeling the pressure.

If you're worried about rising interest rates, you're not alone. Mortgage rates have been climbing, and the big question is:

How do you protect yourself before they go even higher?

In this guide, we’ll cover:
✔️ Strategies to prepare for rising interest rates
✔️ Whether you should lock in your rate before the next hike
✔️ Alternatives to fixed-rate mortgages that still offer protection

Let’s dive in.

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Understanding the Impact of Interest Rate Hikes

When the Bank of Canada raises rates, it affects homeowners in different ways depending on their mortgage type:

If You Have a Fixed-Rate Mortgage

✔️ Your payments stay the same until renewal.
✔️ If rates rise before your renewal date, you may face higher renewal rates later.

If You Have a Variable-Rate Mortgage

✔️ Your payments may increase immediately (depending on your lender).
✔️ Even if your payment stays the same, more of it goes to interest instead of principal—slowing down how fast you pay off your mortgage.

If You’re House Hunting or Need to Refinance

✔️ A higher rate means higher monthly payments and less borrowing power.
✔️ You could end up qualifying for a smaller mortgage than you expected.

Now that we understand what’s at stake, let’s talk about how to protect yourself before rates rise further.

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Strategies to Prepare for Rising Interest Rates

Whether you’re already a homeowner or planning to buy soon, there are steps you can take right now to stay ahead of interest rate hikes.

1. Lock in Your Mortgage Rate with a Pre-Approval

If you’re planning to buy a home soon, one of the best things you can do is get pre-approved with a rate hold.

✔️ Rate holds typically last 90-120 days
✔️ If rates go up, you’re protected
✔️ If rates go down, you can still get the lower rate

Example:
Emily gets a 5.5% fixed rate pre-approval while house hunting. Two months later, rates jump to 6.2%—but since she locked in earlier, she still gets the lower rate, saving her $200 per month.

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2. Consider Making Extra Payments Now

One way to shield yourself from future rate hikes is to pay down your mortgage faster while rates are still lower.

✔️ Lump-sum payments reduce your balance—meaning less interest paid later.
✔️ If your lender allows prepayments (typically 15-20% per year), take advantage of it.
✔️ Even adding $100-200 extra per month can shave years off your mortgage.

Example:
John has a $400,000 mortgage at 5.5% with 20 years remaining. If he adds an extra $200/month, he:

• Pays off his mortgage 4 years faster
• Saves over $30,000 in interest

This move helps protect against future rate hikes because his loan balance decreases faster.

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3. Stress-Test Your Budget at a Higher Rate

Even if you’re paying 5% today, ask yourself:

Could I afford my mortgage if rates hit 7%?

✔️ Run your numbers using an online mortgage calculator at a higher rate.
✔️ If the payment would strain your budget, start adjusting your spending or savings now.

Example:
Sarah’s monthly mortgage payment at 5% is $2,500.

• At 6.5%, it jumps to $2,900.
• At 7.5%, it climbs to $3,200.

To prepare, she cuts unnecessary expenses and builds a savings buffer in case rates climb higher.

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4. Consider a Shorter-Term Fixed Rate Instead of a 5-Year

Many homeowners automatically choose a 5-year fixed mortgage. But in a rising rate environment, shorter-term fixed mortgages (1-3 years) might be a better option.

✔️ If rates stabilize in a few years, you won’t be stuck with a high fixed rate for too long.
✔️ You can renew sooner at a better rate if rates eventually drop.

Example:
Mike chooses a 3-year fixed mortgage at 5.7% instead of a 5-year fixed at 6.2%. If rates fall in 3 years, he can renew at a lower rate instead of being locked into a higher one.

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Should You Lock in Your Rate Before the Next Hike?

This is the biggest question for variable-rate mortgage holders right now:

"Should I switch to a fixed rate before rates go even higher?"

The answer depends on:
✔️ Your risk tolerance – Can you handle fluctuating payments?
✔️ How much higher rates are expected to go – Are hikes slowing down, or are we in for more increases?
✔️ Your financial flexibility – If payments rise, will your budget be okay?

Reasons to Lock in Now:

✔️ You want certainty and stability in your payments.
✔️ You’re worried about affording future hikes.
✔️ You plan to stay in your home for the next 5 years or longer.

Reasons to Stay Variable:

✔️ You believe rates will level off in the next 12-24 months.
✔️ You can handle some short-term payment increases.
✔️ You plan to pay off your mortgage faster and want flexibility.

Example:
Chris has a variable-rate mortgage at 5.1%. His bank offers to lock him into a fixed rate at 6.3%. He runs the numbers and decides:

• If rates go up by another 1%, locking in would have been a smart move.
• If rates level off or drop, staying variable will save him thousands in interest.

Before making a decision, talk to a mortgage broker who can compare all your options.

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Alternatives to Fixed-Rate Mortgages in a Rising Rate Environment

If you’re hesitant to commit to a long-term fixed rate, but don’t want the full risk of a variable rate, there are other options:

1. Hybrid (Combination) Mortgages

✔️ Part of your mortgage is fixed (for stability).
✔️ The other part is variable (to take advantage of rate drops).
✔️ A great balance between risk and reward.

Example:
Lisa splits her $400,000 mortgage:

• $200,000 fixed at 6% for peace of mind.
• $200,000 variable at 5.3% to take advantage of lower rates.

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2. Adjustable-Rate Mortgages with Fixed Payments

✔️ Interest rate fluctuates, but your monthly payment stays the same.
✔️ If rates go up, more of your payment covers interest (slowing principal repayment).
✔️ Provides payment stability without locking into a high fixed rate.

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Final Thoughts: How to Stay Ahead of Rising Interest Rates

Interest rate hikes aren’t stopping anytime soon, but you have strategies to protect yourself.

✔️ Lock in your rate if stability matters to you.
✔️ Make extra payments now to lower your debt faster.
✔️ Consider shorter fixed terms for flexibility.
✔️ Explore hybrid and adjustable-rate mortgages as alternatives.

The best way to navigate rate hikes is by planning ahead and knowing your options. If you’re unsure about whether to lock in, switch lenders, or explore other strategies, let’s talk and build the right plan for you.