When will interest rates rise?
August 17, 2016 | Posted by: Natalie Wellings
Now that the US economy is showing more significant signs of recovery, the topic of interest rate increases is dominating conversations once again. It’s a widely held belief that once our neighbour to the south starts raising rates, Canada will follow suit—but when will that be?
If you’re a variable rate holder, you’re probably watching the rate conversation closely—and growing frustrated by what you hear. Why? Because, in short, no one knows when rates will rise. Period. That being said, here’s what we do know:
- The US has recently created more jobs than expected, and the unemployment rate is easing to below 6%.
- That being said, the chair of the Federal Reserve, Janet Yellen, says there are still “too many” people looking for jobs and, with no obvious threat of inflation, there’s no reason to raise rates just yet.
- The Federal Reserve committee has said, repeatedly, that it plans to leave the benchmark rate low for a “considerable period” after its quantitative easing program ends—something that is expected to occur next month.
With all that information in hand, most experts believe the Federal Reserve will start increasing rates in the spring at the earliest, while others say it may wait until summer. You can expect the Bank of Canada to start raising rates as well around the same time, although some are anticipating Canada may lag behind a bit.
So what can variable rate holders do in the meantime? If you haven’t already, you may want to increase your payment to prepare for the imminent hikes and pay some extra principal down while you’re at it. If you can, match your payment to the going 5-year fixed rate. If that’s a bit too much of a shock, consider raising your payment to an interest rate that’s 0.5% higher than what you’re already paying.
As always, if you have any mortgage-related questions – variable or otherwise – feel free to drop me a line!