Interest rates
Are you ready for higher mortgage rates?
A house for sale in Montreal Christinne Muschi
The mortgage that might look affordable now very likely won't be when the inevitable rate climb kicks in
Rob Carrick
Published on Tuesday, Nov. 17, 2009 7:14PM EST Last updated on Wednesday, Nov. 18, 2009 12:52PM EST
You know how the housing market rebounded so fast and furiously after its recent downturn?
The same thing could easily happen with interest rates, which are now close to historic lows. That's why there is growing concern the homes being snapped up today could become unmanageably expensive when mortgage rates rise.
The cost of carrying a mortgage will absolutely shoot higher in the next few years. Nothing is more certain, so let's get you prepared.
According to Michael Gregory, senior economist at BMO Nesbitt Burns, a “normal” level of interest rates would suggest a cost in the area of 6 per cent for variable-rate mortgages. "We're at about 2.25 per cent for variable-rate mortgages today, so we're looking at a potential rise of close to four percentage points over the next five years."
“The Bank of Canada has been very clear on this: ‘Ladies and gentlemen, rates are abnormally low and in the future they're going to be higher. So be careful.'" ”— Michael Gregory, senior economist at BMO Nesbitt Burns
Mr. Gregory said rates typically move in such a way that the cost of a five-year, fixed-rate mortgage would rise about two percentage points in this same outlook. So if you take out a five-year mortgage today at a rate of 4.5 per cent, you might expect to pay 6.5 per cent at renewal.
These are estimates only, of course. Actual rate increases could be less than this, or more severe. What's certain is that rates will rise.
“The Bank of Canada has been very clear on this,” Mr. Gregory said. “‘Ladies and gentlemen, rates are abnormally low and in the future they're going to be higher. So be careful.'”
