Canadian Mortgage Rates And The US Fed

The United State Federal Reserve recently raised rates for the first time since the 2008 financial crisis. Short-term rates are expected to rise about one percent per year for the next three years, a modest increase that reflects the improvement in the US economy. Borrowers will be paying more on their loans and mortgages, but the climb will be gradual. This US policy will affect Canadian rates as well. If you are planning to buy a home in the coming years, you need to understand the effects of this event on the Canadian housing market. 

Five-Year Mortgages

The banks are affected by Canadian long-term bonds, which are similarly attached to US bond prices. As a result of the recent rate increases, bond prices will fall, discouraging banks from selling as many bonds to provide money for mortgages. Fewer available funds mean that Canadian mortgage rates will rise a bit. Five year fixed mortgages are likely to be the first to increase. So far, it looks like this increase in interest rates will be modest.

Candian Dollar

The loonie has already taken quite a hit in recent months, but if the rate hike strengthens the US dollar against Canadian currency, as it is expected to do, the loonie will obviously fall further. Although this development is good for US to Canada tourism, it means any shopping excursions to the US by Canadians will be costly. Canadian exporters will benefit, however. Fortunately, this development should not adversely affect your mortgage plans. 

Bank of Canada 

You can feel reassured by the current difference between Canadian fiscal policy and that of the US.  Experts say that Canada's central bank is not planning to change its lending interest rate in the immediate future. In fact, it may not change in the next year. Since Canada is currently losing so much money due to falling oil prices, the policy must differ from that of the US, which is not suffering a similar economic downturn. This non-action will help keep mortgage rates from soaring.

Buying a house in Canada next year should not cost you much if any more money than it would have this year. Fixed rates may slowly rise due to the US Fed increase, but since the Canadian Central Bank is not following suit, nothing like a lending crisis is developing. The loonie may drop further against the American dollar, but that will mostly impact tourism and importers. Canadian and US finances are still affected by each other, so future increases will probably move Canadian mortgage rates higher. For right now, however, your house purchasing plans can safely proceed. 

To learn more, contact a company like Dominion Lending Centres HT Mortgage Group