Apr 2012 4

Canada’s Low Interest Rates: Did You Take Your Chance?

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BMO first offered 2.99 per cent five-year fixed closed mortgage in January this year. In March, it triggered another mortgage battle, repeating its 2.99 per cent offer, that was ended by the end of March. RBC and TD Bank have increased their four-year mortgage rates from 2.99 per cent to 3.49 per cent, effective March 29th. They also raised the rates on a five-year variable mortgage rate to 20 basis points above prime.

Warning Finger of Specialists

Specialists warn that the times of extremely low interest rates are over. The rates reached their bottom and now there is only one path to go: up. “Everybody is looking at the bottom here and thinking, ‘When are rates going to go up?’” says Kelvin Mangaroo, president of RateSupermarket.ca.

“If you had told me when we were lending money at 21 per cent, that we would one day be down to 2.99 per cent, I’d have been laughing,” said Laura Parson, BMO area manager of mortgage specialists for the district of Calgary, Manitoba, and Northwest Ontario. In next months, 2.99 per cent rate will become just a ridiculous story of mortgage history.

In fact, this isn’t the first time we’ve heard such warnings. Chief economist with TD, Craig Alexander, admitted: “Unfortunately, we have been saying for years ‘that’s it, rates can’t go any lower than they are today’ and then they are 12 months later.” This time, his predictions will come true. “Short of the Canadian economy going into a recession and causing the Bank of Canada to cut rates back to their all-time low, there really isn’t an environment that would lead to significantly lower mortgage rates,” Alexander said.

Take or Do Not Take?

So the question is: Did you take your chance and get an extremely low-rated loan? If so, are you prepared for interest rates to go up?

A survey by BMO says 20 per cent of Canadian households wouldn’t handle their living costs if the rates rose by two percentage points — one fifth of Canada’s households! “Truthfully, I think two per cent is pretty reasonable to expect,” said Laura Parson.

If your answer to the question in the title is negative, don’t hesitate too long. If you have been considering a mortgage, remember that rates are still quite low — lower than they will be in the following months as forecasters agree they will be rising. However, think carefully. Can you afford your home even when interest rates increase? Canada’s high debt-to-income ratio reached 151 per cent and isn’t likely to decrease; 58 per cent of Canada’s households are indebted and most of them are heavily dependent on borrowing (they hold 73 per cent of all household debt in Canada). Don’t increase these numbers when you aren’t sure you can handle your debt.

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