Rates Going Up, Home Owners in too Deep
With interest rates on the verge of going up this week, for the first time in years, 25% of home owners say they already are in over their heads. This has to be concerning news for the bank of Canada. Many clients who are in fixed rate mortgages will have more time to get their financial house in order before their mortgage comes up for renewal. Others, in variable rate mortgages will see an instant jump in payments which could be problematic.
How Much Will Rates Go Up?
Interest rates are set to go up by likely .25% on Wednesday, and may very well go up another quarter per cent before the end of 2017. For those in variable rate products, this will have a decent sized effect on payments. Now would be a great time to lock in a rate, if the new payment does not put you into a difficult position due to the higher fixed term rate.
This will be the dilemma for some clients, who will be looking at going from 2% to 2.25% or possibly 2.5% on their floating product. Should they ride this out or lock in to a rate in the 2.6-2.8% range now but deal with a much larger jump in payments. It will be a tough decision for clients who are already feeling the pinch.
What Does it All Mean?
Rising interest rates have the potential to put many home owners in a situation where they can no longer afford their payments. If it is as bleak as this Financial Post article makes it out to be, a housing crash is not out of the question. This has been the dilemma facing the Bank of Canada for years now as Canadians debt situations haven’t improved as much as hoped.
The economy in many ways is turning the corner, however this has the potential to be a real problem moving forward.