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Winnipeg Free Press - PRINT EDITION

Mortgage rates likely to rise soon

By: Kristine Owram

Posted: 11/20/2009 1:00 AM | Comments: 0 (including replies)

TORONTO -- The Canadian housing market has seen a stronger and faster rebound from the recession than any other segment of the economy, due in large part to enticingly low mortgage rates.

But rates this low -- 5.59 per cent for a five-year fixed-rate mortgage and 2.25 per cent for a five-year variable-rate mortgage at one bank -- can't last forever, and experts are advising borrowers to prepare for higher rates within the next 12 months.

"We have to realize those are emergency interest rates," said CIBC economist Benjamin Tal.

"Interest rates will rise -- it's just a question of time, it's not a question of if. And if that's the case, we have to make sure that when we borrow this money we can afford the same mortgage 200 or 300 basis points higher. That's the key responsibility now of borrowers and lenders, to make sure that what we do, we do it in a prudent way."

Depending on whether they are fixed or floating-rate, mortgages are tied to either the bond market or the Bank of Canada's key lending rate, which are closely related. The central bank's rate has been sitting at a record low of 0.25 per cent since the spring and it has said it will keep it steady until at least next June to help stimulate the ailing economy.

On Wednesday, three of Canada's biggest banks -- Royal Bank (TSX:RY), Bank of Montreal (TSX:BMO) and TD Bank (TSX:TD) -- announced they will cut posted rates for fixed-rate mortgages by up to 0.25 percentage points. On Thursday, CIBC (TSX:CM), Laurentian Bank (TSX:LB) and Scotiabank (TSX:BNS) followed suit by cutting their five-year mortgages by 0.25 per cent to 5.59 per cent, in the case of CIBC and Scotiabank, and 5.6 per cent at Laurentian.

But mortgage lenders agree that rates are nearing the bottom and will begin to rise again in 2010.

"The only sort of assurance that you hear in the marketplace is the Bank of Canada's going to try to maintain that rate until June. But past that, there are already warnings that if there need to be adjustments, the adjustments could be a little more abrupt than we've been used to in the past," said Martin Beaudry, vice-president of retail lending at ING Direct.

--The Canadian Press

Republished from the Winnipeg Free Press print edition November 20, 2009 B4

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