The Bank of Canada’s Potential Rate Hike and The Montreal Mortgage Industry

• July 6, 2017

Welcome to the Guardian Financing July 2017 monthly newsletter. This month’s issue is about the Bank of Canada’s potential rate hikes and the probable effects on the Montreal mortgage industry.

The Bank of Canada’s Potential Rate Hike and The Montreal Mortgage Industry

The Bank of Canada has hinted at a possible interest rate increase, and this is the kind of news that leaves mortgage brokers on the edge of their seats. The anticipation about the possible effects of such policy changes are sometimes insurmountable and every person with a mortgage or those considering going for one, including brokers, will desire to know exactly where they stand. As usual, fluctuations in interest rates will have a direct impact on the mortgage industry, and Montreal is an interesting market to consider.

The Current State of the Montreal Housing Market

Montreal has been one of the best performing housing markets in the country and experts are eager to see if its relatively good performance is going to continue with the increase in interest rates. The majority believe that the market in Montreal will continue to see an increase in sales and demand.

For instance, the average MLS price rose from $337, 261 in 2015 to $345, 000 in 2016. Such a phenomenal rise is attributed to the increase in employment and household income that has enabled a lot of younger people and families to be able to acquire homes and apply for a mortgage.

It should be noted that the bulk of buyers in this market are individuals interested in condos and single family units.

What an interest rate increase means for this market ?

For buyers in the market, it is still not known whether financial institutions may also increase their prime lending rates if the Bank of Canada raises rates 25 basis points. The recent cuts by 25 basis points by the BOC saw financial institutions lower their prime rates by 15 basis points and this led to a long term spread of 0.20%.

In line with the potential interest rate increase, experts opine that a variable rate mortgage would be ideal for those hoping to get into the market now. This is based on the historical proof that for the last two decades, buyers with floating rate debt have always done well.

Though an increase is expected by the BOC, the rates may not be significant enough, owing to the debt-equity ratio of the country. Financial institutions will also be expected to increase their lending rates with a similar hike in prime.

The other potential impact that an increase in the interest rates will have, is to spur potential buyers to jump into the housing market. This will be due to the financial institutions’ practice of pre-approval mortgages, whereby they guarantee a rate hold for as long as 90 days. Potential buyers should take advantage of this before the hold is lifted.

Guardian Financing is a direct mortgage private mortgage lender. We serve the greater Montreal area providing short term residential mortgage loans, typically ranging from $50,000 to $500,000. Contact us today to discuss your file at 514-700- 3121 or by email at [email protected].