Mortgage Rate Forecast
Mortgage rates have been historically low for 2017, though they were raised twice. And in October, 2017, the Bank of Canada said it would hold interest rates steady for now. But what is likely to happen to interest rates in the future? And how should those planning on buying or refinancing a home plan for these changes?
The Current Interest Rate
The overnight rate was left at 1.00% at the October, 2017 meeting. This is twice the 0.5% that Canadians enjoyed in the spring of 2017. However, the prime rate has fluctuated during this time, and this has increased mortgage carrying costs for variable rate mortgage holders. Prime lending rates were increased to 3.20% in the summer of 2017. This affects primarily home equity lines of credit and variable rate mortgages.
Projections for the Future
Analysts expected the mortgage rate to be hiked at the October meeting. Variable rates have risen since the summer. The stronger dollar and NAFTA renegotiations are expected to drive future interest rate increases. Canada’s strong economic growth is another factor. For example, Statistics Canada said that the economy grew at an annual rate of 4.5% for the second quarter of 2017, far above the growth forecast of 3.7%. If growth continues to be higher than expected, the Bank of Canada will want to hike rates to prevent it from causing inflation to rise. They could certainly justify higher inflation rates, since lower inflation rates are intended to stimulate the economy, while such growth figures indicate it isn’t necessary. This new rates can affect your economy get in touch with Jodi Whalen a trusted Fort Mcmurray Mortgage Broker to help you get the best rates of the mortgage market.
The Bank of Canada says it is not planning interest rate increases for now but will instead monitor headline and core inflation rates. This means that interest rate hikes could hit any quarter in the future or even occur several times over the course of the year. For example, projections of moderate growth by the BoC doesn’t mean we won’t see an increase, since they already underestimated the spring 2017 figures.
Recommended Courses of Action
For the average mortgage customer, an increase of a quarter point in the interest rate equals about a thousand dollars in extra interest over five years for every $100,000 borrowed. If you have a million dollar mortgage in Vancouver, you’re looking at more than $10,000 in extra costs over a five year term. This means that today is the best time to buy a home if you can scrape together the down payment, since the total cost you’ll pay over the life of the loan is only going to go up from here.
If you already own your home, you should consider refinancing now instead of later. It isn’t clear if you’ll be subject to the new, more stringent stress test if you try to refinance your mortgage with a new lender once it goes into effect in January, 2018. That shouldn’t be an issue if you refinance with the current lender.
Regardless of the stress test guidelines, higher interest rates mean higher monthly payments over the life of the loan if you refinance after a rate hike. If you cannot afford a higher interest rate, refinance now to ensure that you can afford to keep your home.