With an Interest Rate Hike Around the Corner, Will Fixed-Rate Mortgages Become More Popular in 2015?

Interest Rates Will Rise…But When?

With the Canadian economy recovering and showing signs of sustained strength, 2015 could be the year when the central bank starts to raise its key lending rate. If so, the big question is, when? And will an increase in interest rates change the way Canadians think about mortgages?

To help kick-start the economy after the global economy sputtered back in 2009, the Bank of Canada lowered its key lending rate. The lower rates made it cheaper for businesses and people to borrow money. Pegged at one percent since September 2010, many predict rates will start to creep higher in the second half of 2015.

Once rates start to climb, it will become more expensive for potential homeowners to borrow money or take out a car loan. It will also impact those looking to refinance their variable mortgages since the rate fluctuates up or down based on the prime rate. Those looking to get onto the property ladder with a fixed-rate mortgage will not feel any immediate impact from a rise in interest rates, but they could when it comes up for renewal.

Will Fixed Interest Rates Become More Popular?

In Canada, 66% of property owners have fixed rate mortgages, 26% of Canadian homeowners have opted for a variable mortgage; and eight percent have gone with a combination mortgage. As interest rates climb, those holding variable mortgages may opt for the security of low-interest, fixed mortgages.

While those looking to make big-ticket purchases like a house or car might not like the idea of higher interest rates, they do have an important upside; if interest rates stay too low for too long, bubbles start to appear.

Many potential homeowners, especially those living in Toronto, Calgary, and Vancouver, have seen housing prices outpace the rest of the country and climb out of reach. A rise in interest rates could cool Canada’s red-hot real estate market and make some areas more affordable.

Rising Interest Rates to Cool Canada’s Red-Hot Housing Market

The Canadian Real Estate Association predicts the average national price for the existing residential market (single-family detached houses, condos, and townhouses) will rise just 0.9% to $409,300 in 2015; this compares to the six percent increase in 2014.

That said, Toronto, Vancouver, and Calgary are still expected to skew the figures. The Vancouver and Toronto regions are forecast to increase three percent and four percent, respectively. Before oil prices fell, Calgary real estate was projected to rise three percent to roughly $497,500, but Calgary area real estate could feel pressure if oil prices remain low.

If you’re thinking of buying a home or refinancing, Canadalend.com can help you figure out which kind of mortgage is best suited to your lifestyle needs. Because the licensed agents at Canadalend.com are independent, they have access to hundreds of different lenders; that means you get the best rates with the best conditions.

To see what kind of loan you qualify for, contact the experts at Canadalend.com today or apply online and a mortgage specialist will help you set up an appointment for a free, personal consultation.

Sources:

“Fixed rate mortgages trump variables, report says,” CBC web site, March 13, 2014; www.cbc.ca/news/business/fixed-rate-mortgages-trump-variables-report-says-1.2570911.

“Get Ready For Interest Rate Shock In 2015,” Huffington Post , January 5, 2015.