Ephraim Vecina
Canadian Real Estate Wealth
Any move by the U.S. Federal Reserve will have a noticeable impact on the Canadian financial system—and this is especially true for any fluctuation in the Fed’s rates.
“Interest rates are rising in the United States and there will be a spillover here,” markets observer Rob Carrick wrote in his December 14 column for The Globe and Mail. “The Fed also estimates three rate increases next year, up from previous guidance that called for two increases. This sets a trend for rising rates that could easily boost Canadian mortgage costs.”
Carrick argued that some adjustments to spending habits would be prudent in light of this possibility.
“Think of your finances as a zero-sum proposition – if more money goes to your mortgage, it has to come from somewhere. Start planning now so you have a strategy in place if you have to renew a fixed-rate mortgage at a higher rate.”
Concerned home owners should keep a closer eye on the bond market through the Bank of Canada’s website, Carrick said.
“Mortgage rates are guided mostly by the interest rate on bonds. The rate on the five-year Government of Canada bond has doubled since the summer, a huge move by bond-market standards,” he explained. “Some lenders have already increased rates on five-year fixed-rate mortgages, far and away the top choice of mortgage holders today.”
The analyst urged those who are nearing renewal time to take advantage of the current environment while it lasts.
“If you’re renewing a mortgage in the next six months, talk to your lender about how to speed up the process so you can capitalize on current rates. People in the market to buy a house should lock in a rate right now – up to 120 days might be possible. Or consider taking a breather on your house search to see if rising rates have an effect on prices.”
“Economists have been saying for ages that only two things can shake the housing market – higher rates or an economic shock that sends the unemployment rate higher. The housing market has its tipping point and any rate increases ahead bring us closer to it,” Carrick concluded.
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