For the last few years, there has been significant speculation in the media regarding what will happen with Canadian interest rates, and April was no exception. This time, speculation surrounded what has been happening south of the border.
The U.S. Federal Reserve has strongly signaled several rate increases should be expected in 2017, which had some Canadian mortgage experts suggesting now may be the time to lock in as the same could happen here. As CTV News reported, James Laird, co-founder RateHub and president of mortgage broker CanWise Financial, says he has seen five-year fixed rates jump about half a percent since last fall and he has suggested that rates will continue to increase through 2017. Read more on this here: http://www.ctvnews.ca/business/mortgage-expert-warns-u-s-fed-will-cause-rate-increases-in-canada-1.3322093.
While the individual banks may raise rates, so far the Bank of Canada has not. In April of 2017, the BOC released its 3rd rate announcement for 2017, holding Canada’s interest rate steady at 0.5%. While the U.S. was mentioned in the rate announcement, and while the GDP is encouraging, Canada’s big bank is still of the opinion that “it is too early to conclude that the economy is on a sustainable growth path.”
Does this mean that the banks won’t raise their rates? Absolutely not. As the CTV News report discusses, Canada’s bond rates are very tightly tied to what is happening in the U.S. and fixed rate mortgages, which are very common in Canada, are tied to long-term Canadian bond rates. The article speculates that, when the U.S. Federal Reserve raises interest rates, bond prices typically fall. As a result, banks tighten lending policies, which can then lead to rising interest rates.
This is highly relevant to mortgage brokers because, with Canadians carrying record debt, higher interest rates could lead some families into financial turmoil. The Toronto Star reported that, in the last quarter of 2016, Canadian families set a new record in this regard – 167.3% of adjusted household disposable income – this could quickly become problematic should rates increase. Read more on this here: https://www.thestar.com/business/2017/03/15/canadian-household-debt-hits-another-record-in-fourth-quarter.html.
One way that Canadian families can mitigate the risks of increasing mortgage rates is to look at how they can use home equity to consolidate debt and reduce monthly payments. In addition, those with variable rate mortgages may want to think about locking in. These are great conversation starters when approaching your prospects for new business.
Will Canadian interest rates increase? Only time will tell. Many speculated that the BOC would raise the key lending rate with last month’s announcement, but in the end, they didn’t. Who really knows what is to come?
At Purview, we have the tools that make initiating the conversation easy. Find out more by visiting http://purview.ca/ today.