Possible U.S. Fed rate hike to impact Canadian mortgage holders

The co-founder of RateHub advised Canadian would-be home buyers to lock in a rate before mortgages become more expensive, as recent developments have pointed at a possible U.S. Federal Reserve rate hike in 2017.

James Laird, who is also president of CanWise Financial, predicted that five-year fixed rates will most likely climb higher this year, after rates have already increased by half a percent since fall 2016.

“If you’re considering refinancing or have an upcoming renewal, you should absolutely act sooner rather than later,” Laird said in an interview with CTV News. “The party line has been three rate hikes, and some people on the street are saying it could even be four.”

For instance, if five-year fixed rates increase from 2.5 per cent to 3 per cent, Laird noted that a household with a $400,000 mortgage will have to pay an extra $100 every month (or $1,200 annually).

The comments came in the wake of U.S. Fed chair Janet Yellen indicating that the first hike this year will be announced at the ongoing Federal Open Market Committee policy meeting, amid decreased global risk factors and more vibrant U.S. economic performance.

Fixed-rate products are among the most prevalent mortgages in Canada, and these are affected by long-term Canadian bond prices—which in turn are coupled to U.S. bond prices. Currently, a larger proportion of Canadians hold fixed-rate mortgages.

In a study released late last year, 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).

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