Eli Christman

If you haven’t heard by now, word on the street is that interest rates are going up. Well, yes and no. Fixed mortgage rates are, indeed, inching higher but variable mortgage rates and the prime lending rates are not — yet. That means, if you have a line of credit, your rates are staying the same and if you have a variable mortgage rate or an adjusted rate mortgage (ARM), you’re safe, for now.

Just wait it out, you think, rates are always yo-yoing. Sorry to say but that approach may not work this time. The reason? This year, the economy has changed. So, if you’re planning a home purchase in 2017, here is what is for certain.

Since the U.S. election we have already seen some upward pressure on bond yields, which is the reason fixed mortgage rates have increased. While the Bank of Canada continues to wait on the sidelines for the U.S. to act, the U.S. Federal Reserve is expected to increase its rates soon. This will put pressure on the Bank of Canada (BoC) to start raising the overnight rate in 2017 and into 2018.

Still, it’s become more difficult to predict the direction interest rates will head.

The latest round of mortgage and capital changes have led to increased borrowing for some mortgage products. And guess who pays? Yes, you do, through higher interest rates. While the changes are gradual they do suggest that interest rates will start to increase in the year ahead.

The current increase in fixed rates is due to the pressure on the bond market. Fixed rates are based on bond markets and although what the BoC does with the prime rate, which directly impacts variable rates, has an impact on the fixed rates, the two act independently of each other. The bond market, like all markets, fluctuate daily.

Uncertainty about the new U.S. president’s policies make it difficult to predict what will happen but so far, it looks as if fixed rates will continue to increase.

Variable rates, on the other hand, are based on the BoC’s overnight rate. The focus of the BoC is on stimulating the economy and keeping the inflation rate low. When the economy is nearing full recovery, inflation can become an issue, so to keep it in check the BoC will start to raise the prime interest rate.

Once again, rate changes are dependent on what is happening in the economy and, without knowing what the U.S. policies are, it’s difficult to predict. If the economy stays its current course, then we can likely expect an incremental increase in March 2017.

What about house prices in Toronto?

Toronto is a hot market and current reports suggests that trend will continue into 2017. It’s also a world-class city, a tourist destination and a cultural beacon, so many North American companies have their head offices here.

“I believe Toronto will see continued net migration into the city for years to come,” said Mark Kerzner, president of TMG The Mortgage Group and chair of Mortgage Professional Canada. “That combined with several supply-side constraints should keep prices from falling too far. While there are several demand-side regulations designed to curb some purchase activity and to mute continued price increases, the GTA will remain in high demand.”

Overall, predicting interest rates in times of uncertainty is challenging. Prior to the U.S. election, the Canadian economy appeared to be steadying. Now, only time will tell.

Personal Finance