Bank of Canada’s announcement this morning was a result of abnormally positive economic data
Data had been recently released from Statistics Canada’s showing second quarter numbers. Canada’s GDP grew by 4.5 per cent in the second quarter. This impressive growth rate nearly tripled the previous quarters’. The result of a strong growing economy almost always comes with an increase in interest rates. This time is no exception. Unlike July, this time there was very little notice of the rate hike. The closest thing to a warning came in yesterday when a couple banks announced fixed rates were rising this week. It seems as though they must have had received the heads up before hand and could now take advantage of panicky people who quickly lock-in their Variable Rate Mortgages to a Fixed Rate when a bank rep calls them this week with the news.
If we keep on the same trajectory the BOC is expected to raise their rates by two more 0.25% increments by 2019. In general this is good news for the Canadian economy as a whole as it shows we have weathered the oil & gas crisis from two years ago and are taking measures to expand beyond real estate and construction as it’s main driving force.
Rising interest rates is usually a move to deter spending and borrowing among Canadians. The result will bring an end to the equity ATM that many Canadian’s have used in the past few years, as property values have soared and spending habits have loosened. Non-mortgage consumer debt rose 3.3% year over year in the second quarter of 2017 with an average of $24,026 per person here in British Columbia. It’s not a whole heck of a lot when that includes credit cards, lines of credit, vehicle loans and student loans. However, a rise in that financial section is never good. Canadians will likely and certainly SHOULD buckle down and take advantage of the incredibly low mortgage rates to accelerate their payments and delete as much debt as possible. We still recommend obtaining as low a variable rate as possible and accelerating that payment as though taking a fixed.
Now for the future mortgage rule changes if you’re still reading….. OSFI has rumored more rule changes will be coming down the pipe “at some point”. Historically whenever they rumor a change, the changes will be implemented. Three years ago the qualifying rate to obtain Variable or any Fixed Rate under 5 years changed to Bank of Canada’s posted rate which is currently 4.84%. The changes are two options:
Option 1: All mortgages must be qualified at Bank of Canada posted no matter what the term (4.84%)
Option 2: All mortgages must be qualified at the Contract Rate plus 2.00% (5 year fixed 3.19% Contract rate would have to qualify at 5.19%)
Because this will make mortgages more difficult to attain I have been encouraging people to look in to financing sooner than later if their goal is to acquire more properties or make any changes.
If you or anyone you know has questions about your mortgage please call us. My team and I would be happy to together to discuss the most educated decision specific for your individual needs
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