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Canadian Mortgage Interest Rates Slowly to Rise

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Canada had exceptionally low mortgage interest rates since the global crisis in 2008. However, the recent economic developments have turned towards the rise of interest rates. A survey of industry analyst finds out that the low mortgage interest rates will increase soon enough, but slowly. A poll of Canadian Mortgage Trends proved that 6 of the largest lenders in Canada are predicting that the Bank of Canada will increase its rates. But, the mortgage rates of Canada will rise later and slowly than in the United States and other emerging countries.


There are three primary reasons why interest rates of Canada will rise later and more slowly than those of the other countries, especially the United States. First, Canada has high levels of private-sector debt which deter its citizens to get new mortgage; secondly, the preference for weaker currencies to boost exports; thirdly, the exposure of Canada real estate market to higher global economic risks.


Probably, the primary reason why Canada’s mortgage interest rates will rise slowly is due to the higher levels of household debt. Non-financial corporate debt and household debt are significantly higher in Canada than in any country. Also, the sensitivity of these debts to change the interests rates higher in Canada, as well. This could be the result of the commonness of fixed mortgage rates in the United States which results to stronger impact on mortgage rates in Canada than the latter country.


Recently, Stephen Poloz, the Bank of Canada Governor has made several remarks suggesting that the BoC prefer a weaker currency. He also said that people must understand that the BoC polices tend to be more independent that those of the U.S. for as it was for the past few years. The Bank of Canada was not alarmed of the situation when mortgage interest rates in the U.S. rise incredibly fast.


Additionally, Canada mortgage interest rates will rise slowly because of the Canadian’s economy higher exposure to global economic risks. In the United States, the export sector accounts13% of GDP, compared to 30% GDP of Canada. Because of the recent crisis in the growth outlook in Europe as well as several emerging markets, the large share of Canada in export will have larger negative impact on its growth. For this reason, the Bank of Canada is relatively more cautious about increasing its mortgage policy rates than the U.S.


As the BoC increases its interest rates, mortgage rates are also expected to increase. Working on the average interest are rate forecasts, a 5-year fixed mortgage rate loan can have 4.95% or higher by the end of the year. However, prospective home buyers should not stress their selves for looking a property to buy in Canada in a short period of time as the increase in Canadian interest rates may take months or a even a year to reach its peak. The main concern here is that the slowdown in the real estate market could have a significant negative impact on Canada national economy.

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