As the overall Canadian economic outlook has been said to be improving, there has also been talk of another interest rate increase in 2018.
While some may think that an increase in rates is more likely a sign of a struggling economy, versus when it is on the rise, as it may turn out both scenarios can be possible. For example, household debt is still on the rise and an increase in rates may be used as a way of discouraging Canadians from taking on more debt.
This time however, perhaps the interest rates changes may also be closely linked to the current housing market and the astounding house prices we have been seeing for some time now. With that said, just how will higher interest rates affect the housing market? Well, the answer is that they are likely to influence this market in a variety of ways and as a result, an interest rate hike could definitely be on the horizon.
The reality is that with higher house prices, home buyers are having to take out larger mortgages and with an increase rate attached, they are also then going to have to make extremely high monthly mortgage payments. On top of the other debts they may already have, this may mean that their overall household debt could become very difficult to manage.
With that being said, with the likelihood of an interest rate increase in 2018, perhaps this may lead to a levelling out of home prices. In this event, mortgage payments may become more manageable.
In addition to a rate hike, home buyers will also want to take into account the new mortgage rules that are set for January 1st. With more hoops to just through so-to-speak, borrowers will also need to make sure that they are prepared to take on a new mortgage.
For borrowers who do not pass the ‘stress-test’ and meet the new mortgage requirements, they might not be given the opportunity to take on the mortgage in the first place. While these new regulations may seem daunting, it is best to know that Canadian borrowers will have an added level of protection when it comes to taking on more debt than they can handle.
Home-sellers on the other hand, will also have to face some new realities when these changes take place and with the potential interest rate increase on top of this, they may need to adjust their plans some 2018. With a slower Canadian housing market, current home owners whoa re trying to sell, may find it more challenging.
The increased interest rate will of course play a huge role in the lives of both the homebuyers and the home-sellers. As mortgage borrowers may not end up being able to afford to take on a mortgage that will demand that they make even higher monthly payments and thus home-sellers may have to wait longer for a buyer to come along.
With mortgage rates already being higher with the multiple increases we have already seen in 2017, as well as with the increase that is likely set to take place in 2018, this could pose an even greater risk to the household debt of many Canadians.
There is also speculation that multiple interest rate hikes will be seen in 2018. While variable mortgages have been more affordable in the past, with impending rate increases, these floating rates may pose more of a risk for many borrowers. As the rate goes up, borrowers may instead turn to a variable mortgage and try to lock it in before the subsequent increases take place.
Now the question becomes, when exactly in 2018 will interest rates increase?? You’ll want to stay tuned to find out so you can be as prepared as possible to move forward with your home ownership plans.