At the start of December, the Bank of Canada announced that it was holding interest rates at one percent heading into the first quarter of 2017. Yet it hinted that it may need to raise interest rates in 2018, depending on how economic uncertainty plays out over the next year. The Governing Council warned that interest rates will almost certainly need to increase by the end of 2018.
Governor Stephan Poloz admitted that the economy was roaring in 2017, wage growth and inflation were below the two percent goal. He also stated that exports were softening. Furthermore, he said that they want interest rate changes to be data driven, not proscribed. Thus interest rate changes in the coming year will be made in response to hard data instead of attempts to drive the economy.
There are a number of trends that led to higher than expected growth for the third quarter of 2017. Oil prices were up. Demand from developing nations for Canadian exports was strong. Business investment was up, while infrastructure spending that started earlier in 2017 started to show up in economic figures. However, Canada’s economy could suffer if President Trump pulls the U.S. out of NAFTA or starts regulating trade despite the treaty.
How does this affect the Canadian mortgage market? The Canadian Imperial Bank of Commerce doesn’t see rate hikes until April, while others think rate increases will wait until even later in the year. This means that those who want to buy a home now or in the spring will likely enjoy today’s historically low interest rates. However, you shouldn’t wait long in case interest rates do start to climb, since they are not going to come back down once the Bank of Canada sees the need to slow down fast economic growth. Another issue is the impact of changing interest rates given the new, more stringent stress test rules for mortgage seekers. As interest rates go up, passing the stress test intended to prove you can afford the mortgage is only going to get harder. So if you’re considering buying a new home or a cash out refinance, you should talk to a Fort McMurray mortgage broker today.
Another group impacted by the risk of interest rate increases are those whose mortgages are coming up for renewal. You don’t want to wait for the mortgage to come up for renewal and be forced to renew at potentially much higher interest rates. This is a complex matter, since breaking the mortgage contract could come with hefty fees. Conversely, you could work with a mortgage broker to find a new mortgage with a good combination of low fees and a low interest rate that makes it worth the effort. A good rule of thumb is considering breaking the mortgage and locking in low interest rates if you’re going to be in the house at least seven years. Consult with a Fort McMurray mortgage expert, since the calculators that tell you how much you’d owe if you break your mortgage don’t address the specifics of your unique situation, whether the extra interest the lender may use when determining your penalty.