At the start of summer, many financial experts were noting that interest rates in Canada looked stable and could remain so well into the new year.
Only a few months later and we’ve experienced a significant interest rate hike from the Bank of Canada. To compound matters, other lenders have followed their lead and increased their interest rates.
This hike should affect all loans and saving products sold by Canadian banks.
What Led to the Interest Rate Increase?
This was the first interest rate hike in years and the resulting fallout is complex with potentially major implications.
Part of the rate increase is due to a rebound in the economy. As oil prices rebound somewhat since its 2014 plunge and the housing market’s dip seems minimal, there are signs that the Canadian economy has bounced back from its recession.
These measures are also an attempt to curb the debt load of Canadians, to spur savings and to strengthen pensions. These all suffered when interest rates were low and people took advantage by loading up on debt.
Where are Interest Rates Headed?
As we’ve recently learned, these things are tough to predict even for financial experts. Remember, pundits called for rates to stabilize beyond 2018 but a hike hit Canadians in July 2017.
Mortgage rates might continue to climb throughout the rest of the year and into 2018 due to North America’s economic expansion. Desjardins Bank has suggested that the rate could reach 5% by 2019.
It might be best to lock into a fixed rate, if possible.
What will Other Lenders Do?
This will most likely be a case of follow the leader. In fairness to lenders, they have also lowered rates in conjunction with the Bank of Canada when they were not required to. It would be surprising to see any lender not try to keep pace.
There’s no need to panic. As easily as rates could increase, they could also lower or stabilize. This is an opportunity to look for some value in the housing market or to save for longer or at better rates.