Not too long ago, the Bank of Canada raised the benchmark overnight rate by 0.25%. The ongoing sentiment at that time was that the Canadian economy was starting to heat up, and interest rates were about to start their long upward climb. People rushed to get into 5-year fixed mortgages, notwithstanding the fact that even in an environment of climbing interest rates, variable-rate mortgages can still be advantageous.
Now, with the recent shocks in Europe and elsewhere, there is a lot of uncertainty as to where rates are going next. Will Mark Carney raise rates again, when it could turn out to be premature? We could very well be headed for a decline in economic growth for the next half of the year, which would lessen the pressure for interest rates to rise.
Items to consider
If you are looking to buy a home or refinance an existing property, then the interest rate is going to have a great impact on you. If you are in a lot of debt and some of that debt is tied to the prime rate, then you definitely want to know where rates are going.
First, consider that interest rates are still very low, by historical standards. Second, consider the propensity of governments everywhere to use inflation as a tool to prevent deflation and to keep spending up. Inflation eventually leads to pressure for higher interest rates. Finally, consider that if money stays too cheap for too long, it increases the propensity for another bubble to be formed. Policy makers are going to want to avoid that situation happening.
Taking all things into consideration, one should at least be prepared for a rise in interest rates in the months and years to come. Your financial future could depend on it.
So, reader, where do you believe interest rates are headed? Are you prepared for a rise in rates? Please don’t hesitate to share your thoughts and let me know what you think in the comments!
- Fixed Rate and Variable Rate Mortgages: Which is Better?
- Interest Rate Mania: Where is the Housing Market Going?
- Canadian Mortgage Trends: Analyzing Variable & Fixed Mortgage Costs
- Daily Capitalist: How To Start An Economic Recovery
- Canadian Finance Blog: Low Interest Rates: The Good, the Bad and the Ugly