The window is quickly closing for B.C. homebuyers in the province to tap near-record low interest rates that are on the rise.
Over the summer, Canada's five-year fixed mortgage rates have jumped more than half a percentage point from their lows over the past two years. Scotiabank chief economist Warren Jestin noted at a Vancouver economic forum September 9 that rates will continue to climb once the U.S. Federal Reserve starts reducing its monthly purchases of $40 billion in mortgage-backed securities and $45 billion in U.S. treasury bonds.
"I believe as the U.S. begins to phase [quantitative easing] out, we are going to see longer-term interest rates in the U.S. go up another 0.5% or more," said Jestin. "As a result, we are going to see Canadian mortgage rates go up, and the cost of borrowing for Canadian businesses go up over the next year."
Shorter-term interest rates, which are primarily impacted by the Bank of Canada's overnight lending rate, aren't likely to rise until 2015, Jestin said, given fairly low inflation and a relatively slower economy in Canada versus the U.S.
But potential homebuyers face rising variable-rate mortgages. Last month, the federal government limited the amount of additional capital lenders could receive under a financing program provided through the Canada Mortgage and Housing Corp.
"That will raise the cost of borrowing for Canadian banks, and that will influence variable-rate mortgages," said Jestin. "Short-term rates have less upward risk than longer-term rates, but the best of the low interest rate news is over for borrowers."
