With New Rules Coming Into Effect, Now May Be the Time to Lock In Your Mortgage

Canadians from coast to coast have been scrambling to renew their mortgage before new Mortgage rules come into effect in January, rules which would require homebuyers to qualify for a mortgage rate which is 200 basis points (2%) higher than their current rate.

The B-20 rules are an attempt from the Canadian government to slow down the rapid price increases in a number of key Canadian markets such as Vancouver and Toronto. With red-hot real estate markets fueling stronger than expected growth in Canada, expectations that the market may cool in the New Year have started to surface.

Record low interest rates are one of the key drivers Canada's housing boom has relied upon to fuel higher and higher prices. With affordability less of a concern in a weakening interest rate environment, consistent price appreciation has become the norm; the worry among some economists and analysis is that the "Jenga" puzzle which is the Canadian real estate market may be resting on interest rates - pulling out that last piece may prove to be a dangerous exercise, argue some.

While the housing market remains the obvious concern among most Canadians when considering interest rates, how rising interest rates will affect consumer spending remains to be seen. With a record number of Canadians withdrawing equity out of their homes in the form of HELOCs, rising interest rates may further dampen discretionary spending, hurting the Canadian economy overall.

To avoid paying significantly higher rates, many advisors are now telling their clients to renew their mortgage early in an attempt to avoid paying interest rates which look to be the beginning of the end for improving affordability.


Invest wisely, my friends.