Where are Mortgage Rates Going in 2016?

For years we’ve been warned that low mortgage rates wouldn’t last forever, and that we should be prepared to see rates start creeping up soon. But that day never seemed to come. Until now.

On December 16th, the US Federal Reserve finally raised its short-term interest rate by 0.25%. That may not sound like a big deal, but it’s the first time the Fed rate has risen in almost a decade. Most economists see this as a turning point. After years at record low levels, US rates are now expected to start steadily climbing, albeit at a very slow pace.

Of course, in Canada things are a little different. Economic growth is sluggish and inflation is tame, so the Bank of Canada has no reason to raise its overnight rate any time soon. However, rising rates south of the border will still have an impact on Canadian mortgage rates.

The benchmark qualifying rate for Canadian mortgages has remained steady for about nine months, but offered or discounted mortgage rates at banks have recently moved higher in anticipation of higher US rates. According to the BC Real Estate Association, the average 5-year rate offered by lenders has increased by about 0.2%, bringing it to 2.79%. And the discount from prime lending rate offered on variable rate mortgages has narrowed from 0.6% down to 0.4%.

With the US Fed rate now on the rise—by as much as 0.75% by the end of 2016—BCREA forecasts the 5-year qualifying rate on Canadian mortgages will increase to 4.79% in early 2016 before gradually rising to 5.11% by the end of the year. As for variable mortgages, that rate should hold steady until the Bank of Canada rate finally nudges upward.

If you’d like to understand how these rate increases might affect your mortgage or financial goals, we’re happy to offer you a free mortgage analysis and answer all your questions. For more info, call us today!

Kupina Mortgage Team – 905.730.4782 – info@kmortgage.ca