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When Mortgage Rates Go Up, they Often Come Down

10 October 2013

When mortgage rates were on the rise in August and September, they had home buyers and those looking to renew their mortgage in a panic. Rates rose significantly and pretty quickly, and had experts and analysts claiming that the predicted doom was here and that it would send our housing market into a tailspin. However, the latest news on mortgage rates proves that the housing and mortgage market is nothing if not unpredictable, and that without any major movements or increases, it’s just too hard to make those kinds of bold predictions. That’s because just as mortgage rates went up just over a month ago, they’re now coming back down.

Due to the fact that Government of Canada bonds were in high demand for investors from the United States and around the world, those looking for certain types of mortgages will now enjoy lower rates on them. This is partly due to the fact that this demand has lessened the fears about an unstable market and the household debt crisis that has been plaguing our countries and others around the world. However, whether or not homeowners start to see a difference in their mortgage’s bottom line will depend on what type of product they’re after.

Fixed mortgage rates will see a decline due to the fact that Americans are still carrying concern over hitting their debt ceiling. This has led American investors to carry their cash over to Canada, looking for a safe haven to hold it. As more continue to do this, lenders on this side of the border will inevitably start to drop their rates on fixed mortgages.

The same cannot be said though, for variable mortgages. Because these depend more on the economic growth within our country, lenders will most likely keep these where they are, at least for the time being. The Bank of Canada has forecasted a cut to what they previously expected for growth in the GDP this year; and diminished consumer spending, while good for historically high household debt, can also be bad for the economy. Because of this, any decline for these types of mortgages will not be seen until certain benchmarks are hit. It’s also largely expected that there will be no change to the overnight interest rate during the next rate announcement to be on October 23.

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