Late 2015, new rule changes to the down payment requirements were announced with an implementation date of February 15th, 2016. These new down payment rules only applied to homes with purchase prices greater than $500,000; however, the ever-evolving set of rules in the real estate & mortgage market in Canada continued to prompt industry discussion, media headlines and questions about what’s next.
The impact of the latest rule changes is largely expected to be limited to buyers looking to ‘move-up’ and buyers in the most pricey Canadian real estate hubs. For example, under the new down payment rules, a $700,000 house now requires a $45,000 down payment. Prior to February 15th, a $700,000 home would have required a down payment of $35,000.
Fast forward to this year, a few of Canada’s largest banks started to increase their fixed mortgage rates, causing clients and critics alike to inquire into whether or not Canada was about to see a trend in rising mortgage rates. It took only weeks for a credit union to then lob fire across the proverbial bow and announce a 1-year fixed mortgage of 1.69% – significantly lower than the 1-year product offered by the big banks. The super-low rate looks to be fueling what might be another mortgage rate war in a warmer-than-usual winter and a hot spring market.
Fixed mortgage rates in Canada are heavily influenced by the Canadian bond markets – which ebb and flow on a daily basis and may at times justify the rate increases handed down by Canadian big banks. The Bank of Canada however; has shown concerns about the Canadian economy and its transition away from energy, the debt load of Canadian households and the global economy as a whole. In December 2015, the Bank of Canada Governor, Stephen Poloz, even floated the idea of negative interest rates.
Rates have shown many indications that they will continue to remain at historically low levels due to a Canadian economy that looks to reallocate its profile, fights for growth in the 1 – 2 per cent range and attempts to poke consumers towards paying down their debts. Variable rate mortgage holders may even see another decrease in their prime rate, while home owners in fixed rate products should continue to enjoy sub-3 per cent five year products.
While no one can say exactly when the interest rate tide will turn, you can certainly always prepare yourself by continuing to pay down your mortgage and deleveraging yourself away from debt.