15 Sep The Effect of Increasing Interest Rates on Kelowna Mortgages
The past seven years have brought stability and reassurance to the world of interest rates and mortgages in Kelowna. This past July, the Bank of Canada increased their overnight interest rate from 0.50% to 0.75%, which was their first increase in borrowing rates since September of 2010. This September has brought another slight increase, bringing the target for the overnight interest rate to 1%.
The Bank of Canada (BoC) based these recent increases on Canada’s strong economic data, which points towards continued growth in a self-sustaining manner. Consumer spending levels have also continued to grow, which is a great indicator of a healthy economy.
What is the Overnight Rate?
The overnight interest rate is also commonly referred to as the policy interest rate. This is the rate that large banks borrow money, in the short term, to each other. This rate can influence other rates, such as those that are connected to consumer loans and mortgages. An increase in the overnight rate can also affect the exchange rate of the Canadian dollar.
After the hike in the overnight rate, the Big Five (largest Canadian banks) all announced that they would be raising their prime lending rates from 2.95% to 3.2%.
Will Interest Rates Continue to Rise?
When an economy is strong and growing, the possibility of interest rates trending upward is always a possibility. The Bank of Canada has hinted that it is unlikely that rates will rise again in the immediate future due to the average levels of debt that Canadian households are carrying. If interest rates are increased too rapidly, the economy could slow and start to trend in the wrong direction.
Most analysts estimate that rates should be stable for the rest of 2017. However, it is safe to say that if the Canadian economy continues to display strength, we can expect an additional hike of 0.25% sometime in early 2018.
What Does This Mean For Mortgages in Kelowna?
If you already have a mortgage on a home, this recent increase means one of two things for you. If your mortgage rate is locked in to a low rate, you could be benefiting for the remainder of your term. If your mortgage is currently a variable-rate offering, you will feel a slight impact immediately. Your payments will increase marginally to cover the additional interest, which stems from the increase in the BoC’s rate hike.
If your current mortgage payments have suddenly spiked, you may want to consider evaluating the other options on the market. One of our favourite exercises here at John Antle Mortgages is to compare our rates to the “posted” rates of other lenders, such as the big banks. As a mortgage broker team, we are often able to secure more favourable interest rates for our clients than the rates that are presented when you deal directly with a big lender. Have a look at our blog post on comparing mortgage brokers to big banks HERE to learn more.
Fixed-Rate or Variable?
If you currently have a variable rate mortgage, you should at least consider some of the fixed-rate mortgage options on the market. The coming years could bring significant upticks in interest rates, which would mean that the variable rate mortgages will put a larger dent in your pockets.
As a consumer, you must keep in mind that the economic conditions of Canada and the corresponding interest rates could change daily. The global market is in a state of constant flux, so before deciding on a variable rate or fixed-rate mortgage, it is always a good idea to consult with an industry expert. A mortgage broker is always in tune with the influencial conditions of the market place, keeping a close eye on all events that could have ramifications on mortgages.
Mortgage Tips and Tricks
One of the ways that we look to provide value to our clients at John Antle is to share industry tricks and tips that we have come across, which could be extremely useful to your and your loved ones in the Kelowna market.
If you are currently shopping for a home, or considering buying a home, we recommend that you reach out to us right away. If we can get you pre-approved for a mortgage, today’s fixed rate will be guaranteed for up to 120 days.
For those that are looking to buy, but not in the immediate future, you should also see some benefits in the prices of homes. As interest rates increase, the housing prices should cool, bringing the price down on the home of your dreams. It is important to keep a very close eye on daily interest rates and look to secure a mortgage quickly if rates are expected to rapidly increase.
The balancing act of interest rates, mortgages and real estate prices is ever changing and overwhelming at times. Our team would love to help out and show you how we secure our clients the lowest possible rates on the market on a daily basis.