Did you catch CBC’s The National discussing increasing Canadian mortgage debt with MorCan Direct last night?
Canadian real estate owners have found themselves in an enviable position over the past 10 to 15 years. Our property values continue to increase and, with few exceptions, the cost to borrow continues to decrease. In 2015 alone, we saw the Bank of Canada reduce interest rates twice.
This August we saw mortgage debt increase by 7.5% over last August. Canadians must be cautious when using the equity in their homes. Borrowers who are using low cost mortgage debt to make their balance sheets more secure are on the right track. By eliminating higher cost debt and making investments that will create wealth in the future, intelligent borrowers are setting themselves up for a comfortable retirement. We would, however, caution those who are borrowing money from their homes to subsidize their lifestyles. When interest rates rise again, and property values inevitably correct, it will leave these “lifestyle borrowers” in a difficult position.
The Bank of Canada is certainly aware of the problem low cost capital is creating in the Canadian economy, but has made the decision to keep rates low to stimulate an economy suffering from reduced natural resource prices. We do not see any reason for the BoC to increase interest rates in the next 12 months. In fact, there are some who would argue for further rate cuts.
With money flowing out of Canada at the fastest pace of any developed country in the world, (great article here), all eyes are now on the new Liberal government to see how they intend to stimulate the struggling Canadian economy.
If you are curious about switching to a variable rate mortgage, don’t hesitate to give us a call.