An improving economy increases the prospect of a hike in interest rates, and it could come sooner than many think. An increase in the overnight lending rate will have an impact not just on mortgages, but also savings and debt.
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Toronto, Canada (PRWEB) December 05, 2013
Canadalend.com, the leading low-cost private mortgage solution provider in Canada, cautions that near-record-low interest rates are masking the decline in housing affordability across the country, and warns that when interest rates do rebound, the average Canadian will be faced with a higher cost of living and lower savings.
In an effort to help stimulate the economy, the Bank of Canada has kept its overnight lending rate at one percent since late 2010. While the lending rate is not expected to increase until the economy improves, the fact remains that it will eventually tick higher, and the increase could catch homeowners off guard. During the third quarter, Canada’s gross domestic product grew at an annualized pace of 2.7%, the largest gain since the third quarter of 2011. (Source: "Canadian economic accounts, third quarter 2013 and September 2013," Statistics Canada web site, November 29, 2013; http://www.statcan.gc.ca/daily-quotidien/131129/dq131129a-eng.htm.)
"An improving economy increases the prospect of a hike in interest rates, and it could come sooner than many think. An increase in the overnight lending rate will have an impact not just on mortgages, but also savings and debt," says Bob Aggarwal, president of Canadalend.com. "Unfortunately, many homeowners or potential homeowners have become accustomed to the near-record-low interest rate environment and are not prepared for a rate hike and how it will impact their day-to-day life."
Back in 1997, the average home price in Canada was $154,620, or about 4.9 times the average pretax annual full-time income of $31,484. Through the first seven months of 2013, the average price of a home in Canada was $379,725, or roughly 7.8 times the average full-time income of $48,497. (Source: Carrick, R., "Why Canadian homes are more unaffordable than ever," The Globe and Mail web site, November 25, 2013; http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/why-canadian-homes-are-more-unaffordable-than-ever/article15588053/.)
Aggarwal notes that since 1997, housing prices have soared ahead of income. During a period where incomes have risen 2.6% annually, housing prices have climbed 5.4%. While low interest rates helped stimulate the Canadian economy since the markets collapsed in 2007, they have also helped people get into homes that are going to be difficult to hold onto.
"While some real estate agents will tell potential home buyers to get the biggest place their pre-approved mortgage will allow, the fact remains that interest rates will tick higher over the coming years, and those who maxed out their mortgages will be faced a sizeable interest rate increase when they renew their mortgage. That translates into a higher mortgage payments and lower savings," he adds.
"At Canadalend.com, we understand there is no one-size-fits-all approach to mortgages—that potential homeowners have different requirements," Aggarwal concludes. "The independent, licensed agents at Canadalend.com can help their clients look at a number of factors, including finances and employment, to help determine which kind of mortgage best suits their financial and lifestyle needs."
Canadalend.com is one of the largest, most trusted private mortgage brokers in Canada, with skilled independent, licensed professionals helping Canadians coast-to-coast. Canadalend.com provides its clients with residential and commercial mortgages, home equity credit, debt consolidation, and financing concerns. To learn more about Canadalend.com, visit the web site.