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Interest rates going up?


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The Governor of the Bank of Canada, says he may rise long-term interest rates and this will affect mortgages and perhaps credit lines. On the radio, the report said he was thinking in about two months time and he does think this will hurt the economy. Will it hurt , yes or no? http://ca.finance.yahoo.com/news/boc-governor-poloz-sees-long-term-rates-rising-011052066.html

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The housing industry is always slowed down when mortgage rates rise, since fewer people qualify for mortgages and those that do qualify can get less money. But.... five year fixed mortgaes can be gotten today for around 3.5%, variable rates for about 2.6%. That is still cheap money, and modest increases to both won't make a huge difference.

What might make a difference is the decline of the $CDN, now at or near a three year low around $.93US.

That is good news for Canadian exporters and manufacturers, if there are any left in Ontario.

So to answer your question 'will it hurt': overall, it's a wash.

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Yeah, I think the probably more people in Ontario are going to feel the pressure of the higher rates, if and when they do go up. The government has kept saying to consumers to watch their debt, and I 'm sure most are but there will be some that could end up losing their homes, if they can't make the payments. Although, it does depend on what rate is set and if those people can find another job paying more or find a part time job. I would think the line of credit, would hurt more than the mortgages since its compound interest. The feds needs Ontario in the next election , so we'll have to wait and see what their reaction would be if finances get ugly for many people.

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The Governor of the Bank of Canada, says he may rise long-term interest rates and this will affect mortgages and perhaps credit lines. On the radio, the report said he was thinking in about two months time and he does think this will hurt the economy. Will it hurt , yes or no? http://ca.finance.yahoo.com/news/boc-governor-poloz-sees-long-term-rates-rising-011052066.html

The Bank of Canada does not set long term interest rates - they are set by banks and the main influence is the bond market. The BoC sets the overnight rate which essentially establishes short term rates. I'm not sure what you heard on the radio but in the story, it says that Poloz believes that long term rates will rise due to the US central bank reducing the amount of bonds it will buy.

I don't know whether it will hurt the economy but a sharp rise in mortgage rates will kill the housing market and could cause a collapse in prices. House prices could only be sustained at this level on the platform of very low interest rates. I don't think it would take very much of an interest rate hike to drastically change the affordability equation. That would cause a collapse in demand, creating a buyer's market. Most people who could keep on paying their mortgages would so do, hoping to wait out the price drop. However, if interest rates stayed high over an extended period, you would see people having to renew at much higher rates and many with negative equity.

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And it's interesting to see Jim Flaherty doing his usual meddling in the domain of the Bank of Canada.

More to the point, how is this any of his business? The minister of Finance doesn’t set interest rates in this country: the Bank of Canada does. Indeed, the Bank itself doesn’t set interest rates, except in the very short end of the market. It can influence long-term rates, though not in the way that is popularly supposed: a loosening of policy, so far as it is anticipated to mean higher inflation, leads to higher (nominal) rates, not lower.

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