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Commentary: Fixed-rate borrowers will feel considerable pain

by Ephraim Vecina on 14 Dec 2016
A larger proportion of Canadians hold fixed-rate mortgages, which will prove to be a major headache for them come renewal time as they might be asked to pay at a higher rate.
This is because the recent U.S. presidential elections have sent markets into a tailspin, which has mired the bond market (and fixed-rate products) into considerable uncertainty, CBC News reported.
“That boost in bond yields is a big factor in pushing up fixed mortgage rates in Canada, where big players like TD Bank and Royal Bank have each hiked some of their mortgage rates in the past few weeks,” CBC business senior writer and markets observer Peter Evans stated.
More importantly, if the U.S. Federal Reserve hikes rates while the Bank of Canada hold steady, the Canadian dollar would remain weak.
“At a minimum, the loonie is likely to remain close to its current level around 75 cents US,” TD economist Beata Caranci said.
“The last thing the Federal Reserve likely wants to do with its policy decision on Wednesday is to fan the flames of the bond and currency markets,” according to Derek Holt  of Scotiabank.
In a recent study, Manulife Bank of Canada warned that over 16 per cent of Canadians will not be able to service existing debts if their current mortgage payments increase in any way (even if their main wage earners do not get laid off).
The results emphasized that more and more Canadians are finding themselves ill-equipped to handle emergencies and major financial policy shifts—not surprising in an era that has seen costs grow steadily amid stagnant incomes.
“The survey results [are] more reflective of monthly mortgage costs — which are a function of debt and interest rates,” Manulife Canada Chief Investment Strategist Philip Petursson wrote in the data release.

Related Stories:

Spectre of U.S. Fed rate increase plunges mortgage markets into unease

Bank of Canada announces rate

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