Will interest rates go up in 2021?

Will interest rates go up in 2021?

The British Columbia Real Estate Association has come out with their interest rate forecast which predicts that fixed term mortgage rates will start to go up in the 2nd quarter of 2021. They also indicate that variable rate mortgages will remain steady throughout 2021 and that they are not likely to move higher until 2023.

This forecast reflects that as the vaccine for Covid 19 becomes more available the economy will be able to open up a bit more and we will slowly get back to the new normal.

If you have a mortgage coming up for renewal or are thinking of making a purchase in 2021 it would be a good idea to start looking at setting up a rate hold to take advantage of the lower rates.

If your mortgage is not up for renewal this year and your lender allows it you may want to consider an extend and blend of your current mortgage. Depending on how much time is left on your current mortgage you will get a reduced rate somewhere between your current rates and today’s rates.

If you have any questions about your mortgage give me a call at 604-961-2400.



Is it better to rent or buy a home?

Living in the Vancouver lower mainland comes with many challenges when it comes to housing. Renters face high rental rates but if they look at buying a home the house prices look out of reach. But is it better to rent or buy a home?

I work with at a lot of first time buyers and most are trying to figure if they are better off renting than jumping into the real estate market. One of the challenges for first time buyers is that to purchase a home the amount they will have to spend on housing each month goes up so it looks like it costs more to own than it does to rent. I agree that for first time buyers their monthly cash outflow will increase when they buy a home but is it fair to say that their housing expense has increased?

What is sometimes missed is that your mortgage payment is made up of two parts. A portion goes towards the interest that the lender is charging to lend you the mortgage. The interest is the “rent” you pay to borrow the money. The rest of your mortgage payment goes towards paying off your mortgage. This can be looked at as savings since over time you will pay off your mortgage and then have an asset that could be sold to get your money back.

One of the things I do for the first time buyers is walk them through a simple calculator that let’s them see if the expense portion of the monthly payments is more or less than if they had continues to rent. If you would like to walk through your situation we can see what makes the most sense for you.

Give me a call at 604-961-2400 if you have any mortgage or real estate related questions.



Interest rates are changing!

Interest rates are changing!

These last two weeks have seen many changes in the financial markets and mortgage world.

At the end of the week the Bank of Canada dropped its’ key lending rate by .5%. This is on top of the .5% drop they had announced on March 4th. The current key lending rate is now .75%. Most lenders had dropped their prime lending rates to take into account the March 4th drop and we will have to wait and see if Fridays’ drop is also passed on to consumers.

These drops are good news for anyone in a variable rate mortgage or with lines of credit that are based off of bank prime rates.

The five year bond rates have also been in decline and dropped from 1.36% in mid-February to .55% on March 11th . With these types of yields in the bond market it indicated that we could see rates for five year fixed term mortgages in the 2% to 2.5% range and in fact some lenders have been offering insured and insurable mortgages in this range.

This also changed on Friday of this week when the yields in the five year government of Canada bonds jumped to .67% and some lenders also indicated that they would be increasing the rates on their five year fixed term mortgages.

The other thing that happened on Friday was that the yield curve started to steepen. By that I mean that the yield on the two year bond was at .54%, the five year at .67% and the ten year stood at .85%. This is the type of yield curve that is considered more normal as investors want to be compensated with higher returns for taking on the additional risk of investing for a longer term. A steepening yield curve typically indicates that investors expect rising inflation and stronger economic growth.

This is in contrast to most of the last year where the yield curve was either flat or for a short time inverted. A flat yield curve can indicated that there is an anticipation of slower economic growth and an inverted yield curve can indicate that the economy may be headed towards a recession.

Now, one day does not make a trend but it is something to watch going forward and seems to be in direct conflict with the current challenges to the economy from the covid-19 virus and the oil price wars.

The impact to the economy from the covid-19 virus and the oil price wars will be a challenge and depending on how long they last will determine if the shook will be the same, better or worse than the 2008 financial crisis, Hopefully we will be able to get the covid-19 virus under control sooner as opposed to later so that the impact will be short term.

I we look at what happened in 2008 we saw the banks look for a bigger return and they switched from offering variable rates at prime minus a discount to prime plus a premium. In some case that swing was from prime minus 1% to prime plus 1%. At the same time they did push up rates on the fixed term mortgages.

So if you have a mortgage coming up or renewal in the next four months it might be a good idea to look at what your options are for locking in an interest rate.

If you have any questions please give me a call at 604-961-2400.


Will interest rates increases slow in 2019?

Since July of 2017 the Bank of Canada has raised interest rates five times. And up until December of 2018 the Bank of Canada maintained that its key bank rate would need to continue to increase until it got to their toward its estimated “neutral range,” of between 2 ½% and 3 ½%. That would have meant that rates would need to go up by an additional ¾% to 1 ½% higher than today’s rate of 1 ¾%.

In December of 2018 the Bank of Canada maintained their rate at 1 ¾% and in their comments indicated that rates may not go up as quickly as they expected. They based this on the fact that the Canadian economy was slowing as a result of lower oil prices, weaker consumer spending and a slowing housing market.

At the first meeting of 2019 the Bank of Canada again decided to keep their overnight interest rate at 1 ¾% and mentioned the same concerns as they had mentioned in December.

So what happens for the rest of 2019? Predicting where interest rates are headed is always a challenge and if you look at the chart below you can see what the economists at the banks think. For the most part it seems that most lenders are saying that the increase in interest rates will slow in 2019 and that the increase will be between ¼% and ½%. It is in 2020 that you start to see more of a split in the predictions with some analysts predicting that rates could actually drop by the end of 2020. This drop in rates is based on the risk that there could be a recession at some point which would see the Bank of Canada drop rates to help get the economy going again.


2019 2020
Lender Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
CIBC 1.75 1.75 2.00 2.00 2.00 2.00 2.00 2.00
Desjardins 1.75 1.75 2.00 2.00 2.25 2.25 2.25 2.00
National Bank 1.75 1.75 2.00 2.25 2.25 2.25 2.25 2.00
RBC 1.75 2.00 2.25 2.25 2.50 2.50 2.50 2.50
Scotia 1.75 2.00 2.25 2.50 2.75 2.75 2.75 2.75
TD 2.00 2.00 2.25 2.25 2.50 2.50 2.50 2.50


Looking at the bond markets provides additional support for the idea that interest rates will not be moving higher by a significant amount. Government of Canada bonds are as of January 9th yielding 1.91% for a two year term, 1.91% for a five year term and 1.98% for a ten year term. The bond traders are not asking for any premium to lend money out for longer which is a sign they don’t expect much of a change in interest rates.

So what does that mean for you? If your mortgage is up for renewal you may want to consider either a variable rate or maybe a shorter fixed term in the two to three year range. One of the things I can do for you is prepare a comparison of the different options to help you decide which is best for you.

If you have any questions about your mortgage call me at 604-961-2400.


Bank of Canada to increase rates by only ¼% in 2019!

In their December 2018 Mortgage Rate Forecast the B.C. Real Estate Association is predicting that the Bank of Canada may only increase interest rates by ¼% in 2019. The report also predicts that five year fixed mortgage rates may also be at or near their top.

In making their predictions the BCREA pointed to the slowing economies in both Canada and the US as well as the impact of lower prices for Canadian oil. They are not alone in saying that the economies in both Canada and the US will slow next year. More and more analysts are predicting that both economies will slow which will reduce the pressure for the central banks to increase rates.

If you would like to get a copy of the full forecast you can email me at lawrie.thom@mtgarc.ca.

How does this impact you if you are looking to take out a new mortgage or if your mortgage is up for renewal in 2019? Depending on your personal situation and your ability to deal with an increase in your monthly mortgage payment you may want to consider taking a variable rate mortgage.

Right now the spread between the variable and five year fixed rates is about ¾%. So if rates go up by the predicted ¼% you would still be saving ½% on your interest payments. For a typical $300,000 that would be a savings of about $32,000 over the life of you mortgage with monthly payments that are lower by around $100.

If you would like some help deciding if a variable rate mortgage is right for you give me a call at 604-961-2400.

Or if you would like to get a copy of the full forecast you can email me at lawrie.thom@mtgarc.ca.

Is your mortgage insurable? It could save you thousands if it is.

The new mortgage rules have created three categories of mortgages: insured, insurable and uninsurable. Currently five year fixed mortgage rates typically range from 3.69% for an insured mortgage to 3.99% for an uninsurable mortgage.  Based on current interest rates and a typical mortgage amount $300,000 that would be a savings of more than $20,000 over the life of your mortgage.

Before the new rules came in to place mortgages fell into two categories, high ratio or conventional. High ratios were when borrowers had less that a 20% down payment or 20% equity if they were looking to renew or refinance. And all mortgages could be insured by the government. This insurance protected the lenders in case the borrower defaulted on their mortgage. For high ratio mortgages the borrower covered the cost while lenders covered the cost for conventional mortgages. At that time interest rates on high ratio and conventional mortgages were the same so most people tried to get to the 20% down payment on order to avoid paying the mortgage default insurance.

Even though you may have originally taken out a conventional mortgage you may still be able to fit in the insurable category and it is this category that can provide the biggest savings as you may get the lowest interest without having to pay for the mortgage default insurance.

Here are the basic guidelines for each of the categories which might give you an idea of where you fit in. But it never hurts to review your specific situation with a mortgage broker. Most mortgage brokers are happy to provide a complimentary mortgage review to lay out the best options for you.

Insured Mortgages:

  • For the purchase of a property that will be owner occupied. This includes second or vacation home.
  • Purchase price of less than $1 million
  • Down payment of less than 20%
  • Maximum amortization of 25 year
  • The borrower pays the cost of the mortgage default insurance

Insured mortgages have the lowest interest rates.

Insurable Mortgages:

  • For the purchase or transfer of an existing mortgage. No changes can be made to the existing mortgage.
  • The property must be owner occupied
  • Purchase price less than $1 million
  • Down payment or equity of 20% or more
  • Maximum amortization of 25 years
  • The lender pays the cost of the mortgage default insurance

Insurable interest rates have a sliding scale based on the loan to value from as low as the rates offered for insured mortgages to as high as the rates for uninsured mortgages. The loan to value is the ratio of the mortgage amount compared to the purchase price or estimated value of the property. The lower the loan to value the lower the interest rate as the lender cost for the mortgage default insurance drops as the loan to value drops.

In the case of the transfer of a mortgage from one lender to another the value used to determine if a property meets the guidelines is based on the value of the property before the new rules came into place in November of 2016. However the loan to value is calculated based on the current value of the property. This is important for borrowers in the Vancouver and Toronto markets as they may still get a mortgage at best rates due to the increase in market values.

Uninsurable mortgages:

  • For purchases, transfers and any refinance of an existing mortgage. A refinance is when you make any changes to increase the amount of the mortgage or the amortization
  • Property can be owner occupied or a rental
  • Purchase price or property value is $1 million or more
  • Down payment of 20% or more
  • Amortization can exceed 25 years

Interest rates are highest for uninsurable mortgages

If you would like a no cost, no obligation mortgage review give me a call at 604-961-2400.


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Some features of the app include:

Affordability Calculator Closing Cost Calculator
Minimum Down Payment Calculator Stress Test Tool to calculate affordability
Total Monthly Ownership Calculator Beautiful graphs and illustrations

Will interest rates go up next week?

At this point it looks very likely that the Bank of Canada will increase interest rates at their next meeting on October 24th. It is expected that this increase will be 1/4%.

If they do increase rates on the 24th this will be the third increase for this year.

So what should you do if you are in a variable rate mortgage? The first thing is don’t panic. Fixed rates mortgages moved a little higher over the past month in anticipation of the Bank of Canada move. Typically fixed rate mortgages to not move higher when the Bank of Canada increase their rates.

If you have any concerns about interest rates continuing to go up maybe now is a good time to have a mortgage review. We can look at your current situation, where you see yourself in the next couple of years and then see if it makes any sense to change your mortgage at this time.

We can complete the review in a quick phone meeting. All you need to do is have a copy of your most recent mortgage statement so that we can go over the details of where you currently are.

If you would like to review your current mortgage please call me at 604-961-2400.

If you have friends, family or co-workers that have any mortgage questions please feel free to pass this on to them.


Will interest rates go up in 2018?

In 2017 the government brought in several changes to the mortgage lending rules designed to help cool the housing markets. The jury is still out on what impact these rule changes will have.

The last of those rule changes was extending the mortgage stress tests to mortgages where the borrower had a down payment of more than 20%. This means that any new mortgage applications made after December 31, 2017, that are issued by federally regulated lenders will be qualified based on the stress test. Essentially the stress test requires lenders to ensure that borrowers can afford to make their mortgage payments if interest rates were to go up. Depending on the amount of your down payment the interest rate for qualifying purposes will fall between 4.99% and 5.34% in most cases. Using the higher interest rates for qualifying purposes reduces a borrowers buying power by around 20%.

The new stress test rules do not apply to provincially regulated Credit Unions and initially this may be an option for some borrowers. However the credit unions do not have the financial resources to take on all the conventional mortgages so I would expect that they will be using this opportunity to try an bring in some new members who will be willing to move additional business to the credit union. And while they can’t make it a condition for approving the mortgage they may only offer their best rates for borrowers willing to take out some additional products like chequeing accounts, visa cards.

Interest Rates:

With the economy showing signs of improvement the Bank of Canada increased the Bank rate by ¼% in July and again by the same amount in August of 2017. These increase meant that anyone with a variable rate mortgage or a line of credit saw the rates paid on these products increase by ½% over the course of the year.

As is often the case the bond markets moved ahead of the Bank increase which resulted in pricing on fixed term mortgages increasing by about the same ½%. The increase were higher for the shorter terms and less for the longer terms. The one thing to note in this is that the difference between the Bank Rate and the bond rates has shrunk which would tend to indicate that although rates may increase there is nothing to indicate a big jump in rates.

So what happens in 2018?

The Canadian economy is still showing signs of improvement and December job report was very positive. In addition bond rates moved up in December by about ¼% so we may see the Bank of Canada increase rates as early as this month.

It is widely expected that the US Federal Reserve will increase rates three times in 2018 and as is the case in Canada these increases typically are made in ¼% increments. The consensus amongst analysts is that Canada may be forced to increase rates as well but maybe not by as much as in the US. In deciding between a fixed and variable rate mortgage it would a good idea to take into account a ½% increase in the Bank of Canada rate for this year.

Fixed term rates may also see some increases this year but I would expect that if rates go up it will be somewhere in the ½% range as well.

One thing that may help hold back interest rates is that analysts are predicting that sales of real estate may drop this year and it could have some lenders willing to make a little bit less on each mortgage in order to gain some market share.

Picking the right mortgage depends on your personal situation and how your mortgage fits into your overall financial goals. And with all the changes to the mortgage rules it is more and more difficult for borrowers to understand what they should expect when it comes to getting a mortgage. If you have any questions about your mortgage please give me a call at 604-961-2400.