The laws of gravity dictate that what goes up must come down but I’m afraid, when it comes to the laws of economics and interest rates, what goes down must come up. Ultra-low interest rates are only a short-term solution and not sustainable in the long run. This is something which all economists agree on. Unfortunately this is the point where the common consensus ends and opinions diverge. The issue which is most divisive amongst the experts at the moment is exactly when these rate hikes will begin. As recently as a month ago many experts were predicting that rates would remain at their current levels until as late as March of 2012. A tumultuous week in the markets has seen many of these experts revise their predictions, with many now citing September as the month to bring a halt to the rate freeze.
Surprising inflationary reports for May demonstrated the fastest annual rate in eight years. While a 30% increase in gas prices contributed to a great deal of this, rises which Mark Carney (Bank of Canada governor) has previously highlighted as a temporary phenomenon, gas prices are not alone in driving the inflation. Even the core rate, which strips out the more volatile prices of food and fuel, rose to a rate of 1.8%, quickly racing towards the Bank of Canada’s 2% target rate. This has increased calls for Carney to act and increase the over night interest rate in order to curb this trend.
This week also saw a dramatic surge in 5 year bond yields. On Monday the yield had fallen to 2%, leading many to speculate that lenders would be forced to further drop fixed rates, which have already been subject to a series of slashes in the last few months. However these calls were short-lived as yields rebounded strongly in the face of the inflation report combined with renewed hopes that the European Central Bank could be able to prevent the default of Greek debt.
So what does this mean for your mortgage? It means that if you are looking for pre-approval for a purchase or refinance there has never been a better time to secure your rate with Morcan Direct while rates are still low. For those of you in a variable rate we’d like to reassure you that we still think the variable rate is the optimum choice. However our variable rate clients should prepare their finances and make sure they will be able to handle a potential increase to their payments coming in September. If you would like further details on any of the information listed here we implore you to call Morcan Direct at 416-214-9000 for our sound, unbiased mortgage advice.