Date Posted: July 17, 2017
After years of mixed responses from economists predicting rates would be climbing higher or staying low, the Bank of Canada finally raised its key overnight rate from 0.5% to 0.75% on July 12th, 2017.
Though the rate increase was small, it should still have an impact on Canadians who hold various loans, such as a mortgage or line of credit whose rate is determined by their lenders’ prime rate. With the expected increase adding approximately $12-$14 to your mortgage payment per month (on every $100,000 in mortgage debt), Canadian mortgage holders’ time of enjoying record low variable rates may soon be coming to an end.
Canadians have enjoyed record low rates for many years, giving them a window of opportunity to focus on paying down unsecured debt. Though with record levels of housing debt growing, the Government hopes this rate hike sparks some movement for those who haven’t taken steps to eliminating that debit.
Rate increasing coming from the Bank of Canada tend to happen gradually. Therefore fears of rates rising significantly within a short period aren’t likely to happen. It could be years before rates are high enough to where they were before they started dropping at record levels.
Even fixed mortgage rate holders need to budget to pay more in the future as interest rates steadily climb. While being able to enjoy years of the same budget-friendly payment, come renewal time, fixed mortgage rate holders may have to adjust their budget significantly.
Another side effect higher mortgage rates can have is affecting the real estate market. Higher rates can reduce the amount of homebuyers out of the market and a drop in buyers can cause house prices to fall. Homebuyers should think twice about their home buying budget. If they are barely qualifying with today’s rates, will their future afford them the ability to handle increased rates at renewal?
It is important to budget for your home expenses in the future. Working with a Mortgage Broker will allow you to create a plan ensuring you not only obtain a great mortgage rate, but also a mortgage product which is more suited towards your unique situation, now and in the future.