Happy New Year! 2018 is already proving to be an exciting year for mortgage rules and regulations in Canada. The Bank of Canada has decided to start off the new year with an interest rate hike this week, even though the fate of the North American Free Trade agreement seems to be clouded with uncertainty. Analysts are predicting that the Bank of Canada will raise their rates three times throughout the year, stating that the strength of the Canadian economy no longer offers a justification for such low interest rates. The Canadian unemployment rate, sitting at a forty- one year low at 5.7 percent, is a key element to why the banks did not wait until the March, as formerly anticipated, to raise their interest rates. Statistics Canada has said that in December 2017, the economy was up 78 600 jobs, with the largest gains in employment taking place in Quebec and Alberta.
With the outlook on interest rates showing an inevitable increase, although variable mortgages tend to outperform fixed rates, locking your clients into a three or five year fixed mortgage may be more beneficial. Anyone with a variable interest rate may succumb to a quarter point increase in their rate every few months, in the foreseeable future. With already tight budgets for most borrowers, households will need to adjust to these higher borrowing rates.
Since the bank’s interest rates were previously at a historical low beginning in spring of 2009, there may be an increase in the number of borrowers who will need to adjust, and as a result, will apply for private mortgages as an alternative to the big banks, especially if such private institutions don’t completely adapt their regulations to comply with the new interest guidelines.
When all is said and done, there may be an influx of potential borrowers turning towards rentals or more affordable condos, as they put their dreams of becoming a homeowner on hold.
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