Rising Mortgage Rates in Canada

The rising mortgage and interest rates in Canada are a pressing concern for many Canadians with a mortgage. As the rates continue to rise, many people who are looking to buy a new home in Canada are thinking again; although it is predicted that the rates and demand for new homes will continue to rise through 2010, so it may be a better idea to buy sooner than later and take advantage of rates that will are predicted to be higher in the coming years. When interest rates rise, the economy slows, keeping inflation in check. Alternately, lowering interest rates will jump-start a stagnant economy by making it cheaper to borrow money.

When interest rates go up, it simply costs more to borrow money. The Bank of Canada sets rates eight times per year; approximately every six weeks beginning in late January. The US Federal Reserve also sets their rates eight times per year and as the Canadian economy is so closely tied with that of the US, what happens south of the border can have an impact on our mortgage and interest rates in Canada - when rates are lower in Canada than in the US, it generally follows that the value of the Canadian dollar drops, higher rates in Canada than in the United States will attract foreign investors as they will get a higher rate of return. This attention from the foreign investors creates a greater demand for Canadian dollars and helps to increase the value of the loonie. Although there are close links between the Canadian and United States economy, what happens in Canada does not always reflect what is taking place in the US; if the Canadian economy is doing better than the US, the central bank may not need to follow the American central bank so closely as our economy and inflation will remain under control. Keeping an eye on what is happening in the US is a good way to have an idea of what to expect in Canada though as the rates are never fully independent. The current increase trend began in mid-July, 2004 and the Bank of Canada has made the key overnight lending rate increase seven times to 3.75% in March 2006, while the Federal Reserve in the US has raised  the key rate more than fourteen times to 4.50%; both banks are warning that higher rates are likely in the future.

The fixed rates for the Royal Bank of Canada as of March 2006 are 7.850% for a six-month Open Term and 8.200% for a one-year Open Term with 6.050% for a six-month Convertible Term. The Closed Term rates range from 6.050% for a one-year term to 7.150% for a seven-year term and 8.250% for a 25-year term agreement. The Variable Rate Open Mortgages are 5.500% for both one and two-year terms.

The Bank of Montreal offers interest rates as low as 5.150% for a one-year fixed rate closed mortgage and 5.350% for a fixed rate, six-month convertible mortgage. For a one-year fixed rate open mortgage, the going rate as of March 2006 is 7.500% while an 18-year fixed rate open mortgage will charge 8.250% interest. The variable rates range from 5.125% for a six-year flexible below prime mortgage to 5.500% for a three-year open mortgage, although some conditions may apply.

CIBC’s closed mortgages range from 5.85% for a one-year Fixed Rate to 6.50% for a six-month Convertible Mortgage. The open mortgages are at 8.00% for a one-year term and 5.50% for a Variable mortgage with a five-year term.

Although rates are higher than they have been in the past, they are expected to continue to rise, making it a good time to buy even though it may not seem like it. By investing in a fixed-rate mortgage, you may be able to avoid the impact of rising rates and by getting a qualified mortgage broker, you will better understand the options available to you. It is possible to find a solution that will work best for you and suit your needs, just be sure to be properly informed and educated so you are better prepared to make the decision that is best for you.

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