Bank of Canada Warns Of Higher Interest Rates

The Bank of Canada is warning consumers about the possibility of higher interest rates coming, and wants consumers to factor that into their mortgage payments in the future. While many individuals are buying homes right now, which are pushing up the real estate market and the economy in general, they are doing so with low interest rates, which currently stand at a record low of .25 percent.

 While the interest rates are going to remain low until June, they will be going up at that point and that means higher payments for those with variable mortgages and those who have fixed-five year mortgages.

When the interest rates get to more normal levels that will mean that a lot of homeowners will not be able to afford their mortgages. The problem with this is that it can create a breakdown in the housing market, like the United States saw in 2008.

 The Bank of Canada did a stress-test analysis of household finances and found that roughly one in 10 Canadians will need to devote 40 percent of their income to paying debts. That means at least 10 percent of the population will be falling behind on their mortgages when the interest rate increases according to the Bank of Canada.

 While the Bank of Canada has stated that it will not be raising interest rates until June, they did say that if inflation increases, then the interest rate will go up sooner, which could put added stress on homeowners who may not be ready for the increase in their mortgage payments several months ahead of time.

 However, it was not all doom and gloom from the Bank of Canada. They did state that they expect the country will come completely out of recession within the next few months, due in no small part to the booming real estate market. Even if there is some trouble ahead for homeowners who may not be able to afford higher interest rates on their homes, the economy will still continue to grow, and that will help everyone.

 Overall, it is important that homeowners make sure they pay attention to how much they are going to be owing if the interest rate goes up, or at least when it goes up. By planning ahead, they can prevent disaster down the road and that is important in order to keep from falling deeper into debt.