There is an ancient saying, “what goes up must come down”.

While Isaac Newton wasn’t exactly referring to 21st century interest rates when he first quipped that now infamous line, the basic principle still applies. Yet when you’re making monthly mortgage and/or loan payments, waiting for the downswing when rates are high can feel like an eternity—especially when you’re already trying to balance an ever-shrinking budget.

Then the day arrives when the Bank of Canada (BoC) finally decides to make that first rate cut and bond futures start dropping.

After you breathe a sigh of relief, it’s a good idea to start thinking about how to maximize (and prioritize) your money as rates continue to fall. That’s because the impact on your financial situation will be two-fold.

First, there is the net positive impact on your monthly budget when it comes to any debt you may have (i.e. mortgage/loans).

As the BoC begins rolling back those basis points, the less expensive your debt will be to carry.

This shift presents an opportunity for you to review, renew or refinance existing terms to capitalize on reduced borrowing costs. This could mean being able to consolidate debt to free up funds for other financial goals or accelerate your mortgage/loan repayment schedule to be free of debt faster. However, when it comes to refinancing, be sure to ask your mortgage specialist about any fees associated with that strategy to ensure any potential savings outweigh the costs.

If higher interest rates have been keeping you on the sidelines from buying your first home, lower rates could also potentially open the door to financing options and terms you may not have initially qualified for when rates were higher (due to factors such as the mortgage stress test, for example).

A few tips when navigating the world of home buying for the first time:

• Comparison shop—ensuring you reach out to mortgage brokers, as they tend to have access to even lower rates
• When deciding between a variable or fixed-rate mortgage, consider what characteristics are most important to you (i.e. peace of mind knowing your fixed rate is locked in, regardless of whether rates go up or down; or being able to ride the variable wave and instantly benefit from further rate reductions—knowing your luck would change the moment rates start to rise again)
• Once you’ve landed with a rate and lender with whom you’re comfortable, get a mortgage pre-approval, but don’t feel like you immediately have to buy (many lenders will hold a preapproval rate for up to 90 days and this will help to ensure you’re fully ready to take on a mortgage and perhaps take advantage of even lower rates in the likelihood the BoC decide to make further cuts (variable rates) in that timeframe and/or bond prices continue to drop (fixed rates)

Whether it’s your first home, a mortgage renewal or a refinance—be sure to check out our ‘Home-buying 101’ series of articles, chalk full of important tips and educator-specific advice.

Next, there is the impact falling interest rates will have on any investments you may hold.

While lower interest rates are always a welcome sight when it comes to the outstanding debt you carry, it can also be bittersweet where certain low-risk investments are concerned, such as savings accounts and Guaranteed Investment Certificates (GICs). That’s because financial institutions generally set interest rates on these types of accounts based on the overnight rate set by the BoC. So, when rate cuts are announced, banks usually respond in kind (by lowering rates)—which means your savings would grow at a much slower rate, as rates decrease.

Another strategy is to look beyond the big banks for GICs.

Online research and comparison-shopping will often result in finding higher returns at smaller institutions. However, always be mindful of what protection is available for your money. Insurance is automatically provided by the Canada Deposit Insurance Corporation (CDIC) on eligible deposits held in CDIC-member institutions, so be sure the financial institution you select is covered under the CDIC.

Falling interest rates can also impact bond and stock prices, along with their relative attractiveness and value.

If you have investments, especially those of you nearing your pension years or with specific financial goals on the horizon, understanding the implications of falling interest rates on different asset classes is crucial.

For example, bond prices generally move in the opposite direction of interest rates.

That means when rates go up, bond prices tend to fall (and vice versa). While repeat performance is never a sure thing, the contrasting effect that bond prices have (in relation to interest rates) can offer you a silver lining during times where returns are being diminished when rates happen to drop.

On the flip side, however, falling interest rates can also introduce reinvestment risk.

Let’s say you’re receiving payments from bonds or have bonds reaching maturity. This is when you may find it challenging to reinvest your money at the same rate of return, as newly issued bonds will have lower yields.

That’s why diversification is such a crucial component of your overall investment strategy.

Although a diversified portfolio can serve as a comfortable buffer against the effects of interest rate changes on different asset classes, keep in mind this strategy involves more than just spreading your investment dollars. Diversification is also about choosing a mix that reflects your comfort level for risk and factors in your goals (as well as a timeline for achieving them), while at the same time being able to withstand and thrive amid a sea of uncertainty. Hence why a portfolio review is something you should be scheduling with your financial advisor at least once, if not twice a year.

Need help navigating your overall financial situation as interest rates fall? Let’s talk.

Whether you’re looking for a new (or to renew an existing) mortgage or want to ensure your investment strategy still aligns with your overall goals and timeline, we can help you to maximize your money at every stage in life. No matter where you are on the pay grid, what your pension income is in retirement—or what the current state of interest rates happens to be.

Book your financial review with an educator-specific perspective, right now