How can higher interest rates in the U.S. affect Canadian borrowers?
If economists who watch the U.S. central bank closely are right, this Wednesday we’ll see the Federal Reserve raising its key lending rate.
In case it happens, it will be the first time since 2007 that Canadian interest rates are lower than in the U.S.
It’s no secret, that Canada and the U.S. are closely connected, that’s why everything that happens to our southern neighbor, affects us, as well. And today we can see two extremely different pictures.
The U.S. economy showed a 3.2% annual economic growth during the third quarter, marking the largest number in two years. Moreover, the job market is also showing great performance with the unemployment level falling to 4.6%, which is the lowest mark in nine years.
Mortgage rates may have reached their bottom in Canada
The latest poll says the average home price in Canada kept rising this year, however, the savings borrowers could get from low mortgage rates are decreasing.
According to Mortgage Professionals Canada, the average homeowner mortgage rate was 3.02% in 2016, while it was 3.07% a year earlier. In case of a mortgage renewal, the rate stopped at 2.7%.
“Mortgage rate discounts are widespread in the country,” - the association noted. “In 2016, the average actual rate for a five-year fixed mortgage reached 2.72%, marking a 1.94% drop from the posted rate of 4.66%.”
Now Canadians need 102 weeks on average to save up for a home purchase
The recent report by Mortgage Professionals Canada shows that an average Canadian borrower needs about twice more time to save for a house purchase than 15 years ago. As a result, it’s more difficult for the Canadian youth to buy the first property.
According to the survey, a sharp increase in real estate prices led to higher down payments compared to the average income level. Today, a mortgage down payment represents 102 weeks at average Canadian salary, says the Canadian Real Estate Association. It’s twice longer than 15 years ago.