Factors that will drive up Canadian mortgage rates


There are several factors that help determine if Canada’s mortgage interest rates are set to increase or decrease. As we’ve seen as of late, the rates have been creeping upwards and I’m not sure if there is any end in sight any time soon. Here’s a few factors that will determine the interest rates:

1. The strength in the US economy recovery. Canada exports about 3/4 of product to the US and so our economic momentum will always be tied to theirs. Because other countries also export to the US, Canada’s economy doesn’t feel the postives as much as the negatives of our neighbor’s economy.

2. Commodity prices. Our country’s economic momentum is also highly correlated with the price of commodities, especially oil. Now that oil is in the $40/barrel range as well as other commodities, our economy must now find new sources of momentum. If commodity prices stay low then it’s expected that the Bank of Canada will keep the rates at a low level while it waits for new sources of positive economic growth to emerge.

3. Global instability. When the risks rise for global instability, everyone becomes more cautious. Banks are reluctant to tighten monetary rates which help keep mortgage rates from rising.

4. Inflation. If we see a higher inflation rate in the US and Canada, then expect to see the Bank of Canada to raise their rates to maintain price stability. Inflation is an important factor to watch if you are keeping an eye on mortgage interest rates.

5. The value of the Canadian dollar. The Canadian dollar has fallen by nearly 30% over the past 2 years compared to the US dollar. The lower dollar is credited with making exports more competitive however it’s also good to note that our exporters often import materials, which they use to manufacture their products. When the Loonie falls, it means that these companies must absorb higher costs first, before hoping to recover them in the form of increased sales later. The easiest way to reverse a declining momentum of the Canadian dollar is for the Bank of Canada to raise it’s rate and at some point may not have a choice.

Five-year fixed-rate mortgages are available in the 2.59% to 2.74% range, although the major banks are advertising much higher rates so it pays to shop around. Five-year fixed pre-approval rates are offered at rates as low as 2.79%.

Five-year variable-rate mortgages are available in the prime minus 0.50% to prime minus 0.35% range, which translates into rates of 2.20% to 2.35% using today’s prime rate of 2.70%.

If you are thinking about buying a house in Saskatoon, it’s best to contact a trusted mortgage broker that will help guide you to get the best rate possible. Contact me and I can recommend a few brokers that will be able to help.

Kari Calder

Saskatoon real estate agent

Century 21 Fusion

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