Canadians should probably brace themselves for a rise in mortgage interest rates. Economists correctly predicted a hike in interest rates for the U.S. Federal Reserve and on Wednesday the Fed raised interest rates by 0.25% to a range of between 0.75 percent and percent.
Interest rates have been so historically low that this small rise is unlikely to really shake anything up, but Canada has seen more rate decreases in recent years while the Americans have been slowly increasing their rates. The U.S. interest rates are now double those of Canada and we should expect that the Bank of Canada will begin to follow suit soon.
How might this impact Canadian mortgage rates?
Variable-rate mortgages are affected by the rates set by the Bank of Canada. Fixed-rate mortgages are impacted by bond rates as well, and the Fed’s increase is likely to increase the rate of bonds. So even if the Bank of Canada stays the course, your fixed rate mortgage is likely to cost more when it comes time to renew.
Many Canadian banks increased their mortgage rates months ago in anticipation of the U.S. election and in response to increased mortgage insurance costs. Homeowners should still prepare for further increases though as it’s expected that the Federal Reserve will raise rates two more times this year and three times in 2018.
If you’re planning to purchase a home this year, be sure that your credit score is strong and avoid taking out extra credit products – including new vehicles or store credit for furniture. You should also test your monthly payments at mortgage rates that are a few points higher than the current posted rates. This will ensure that you feel comfortable with the payment, even when it comes time to renew your mortgage.