Many people are speculating that the Bank of Canada will be raising rates. While the consensus amongst those I speak to is that rates have nowhere to go but up (and we are closing on a loan with a 2.4% interest rate on friday, so that’s a pretty solid perspective), the question seems to be when they will go up. The Bank of Canada is indicating that they won’t be raising rates any time soon.
Mr. Lane said the bank understands the concern, but it uses its lending rate to keep inflation in check for the whole economy and the housing market is “only one of several factors” that influence inflation.
Other sectors could be adversely affected if the rate jumped before the broader economy was ready, he said.
“If the Bank were to raise interest rates to cool the housing market now – when inflation is expected to remain below target for the next year and a half – we would, in essence, be dousing the entire Canadian economy with cold water just as it emerges from recession.”
Instead, he said, the government could increase capital requirements for lending institutions, adjust loan-to-value ratios and change the terms and conditions required to obtain mandatory mortgage insurance.
“These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions,” he said. “Ultimately, it is the Minister of Finance who is responsible for the sound stewardship of the financial system.”
In an end-of-year interview with CTV, Finance Minister Jim Flaherty said the government would consider raising the minimum down payment from 5 per cent “to a higher figure” and reducing the amortization period of 35 years to "something less."
But the Minister stressed that the government has not yet made that decision.
If you want to invest in real estate and take advantage of the current low rates and generous financing terms, lock your rates in now. If you are dealing with a mortgage broker or bank that is familiar with helping investors, let them know you want to lock in a commitment for as long as possible (likely 60-90 days), and then call me to find a profitable investment opportunity.
Money will be getting more expensive. Look at borrowing some now if you had an investment goal on your list in 2010.