Good news for those of you in Variable Rate Mortgages, Bank of Canada continues to hold firm on Bank of Canada rate, meaning Prime remains at 2.25% until 2nd Quarter of 2010. The strength of the Canadian dollar, low exports for the economy and below target inflation help maintain the holding pattern. See release from Bank of Canada for more details.
http://www.bankofcanada.ca/en/fixed-dates/2010/rate_190110.html
Will Dunning, Economist has done a great job capturing the elements of rising interest rate risk for Canadians. In my experience on the front lines, I agree with all comments provided in this report. Will does a great job of understanding how the mortgage market in Canada is priced and the impact on consumers. The prudence of Canadians during a recession can not be lost. I would suggest that the large majority of Canadians have done a good job of preparing and protecting themselves from increased debt loads and servicing debt loads. We must continue to educate consumers of the impact of higher rates to ensure this is not lost.
For details on the CAAMP Mortgage market report, please follow this link.
http://www.caamp.org/meloncms/media/CAAMP%20%20Winter%20Report%20Black_2.pdf
With all the talk about the housing bubble, have Canadians and their mortgage professionals really been that irresponsible. I don’t think so, however, some so called experts do. In order to really understand this impact, these are the consumers at risk:
1) Consumers with high debt loads that recently purchased a home with little down payment.
2) Future income potential is not apparent
3) No plans to repay their mortgage in any accelerated way (i.e. no increase to payments or lump sum payments) over their term.
or
4) Consumers who just went in to a Variable Rate Mortgage within the last year, and also may fall into any of the 3 categories above.
If any of these apply to you, seek the advice of an Accredited Mortgage Professional to assist you with a communication and financial repayment plan to ensure you don’t get into trouble with your mortgage.
For all others, check out Minister’s Flaherty comments back in 2008. http://www.canada.com/topics/news/story.html?id=e7091819-8d24-44a2-840c-adefc49b2454
In a more recent article, David Laidler, a former visiting economist and special adviser at the Bank of Canada and now a fellow at the CD Howe Institute, a Toronto research group said, ‘The worry has got to be that you might be getting a housing bubble out of this,’ Mr Laidler is a member of the institute’s Monetary Policy Council, which studies central-bank decisions and said in a Dec 3/09 statement that a ‘possible unintended effect’ of Carney’s commitment is ‘the buoyancy of mortgage lending, particularly variable-rate mortgages, and the housing market.’ If this is true it is those in Variable Rate Mortgages most at risk as the current rates are more like a good candy you just can’t give up. At some point it will make sense to consider fixing a mortgage for a longer term (5 years or more), because when rates go up, they could go up fast. Some experts are saying 2-3% in a short period of time.
In the meantime if you in a variable rate mortgage, sit back relax, watch the news and read your mortgage brokers emails, so that you are ready to move when the time comes that rates will increase for the long run.