Friday Mortgage Round-Up: October 12th, 2012

Canada's largest markets updateCanadians and Their Personal Debt Load

RBC released their findings from a recent poll which revealed that just over one quarter (26 per cent) of respondents have zero personal debt outside of their mortgage this year, up four per cent from 2011!  On average, Canadians carry $13,141 in non-mortgage debt, which is a slight increase from last year by only $84.  Ontario residents carry the heaviest debt load which exceeds $15,000 whereas Quebecers carry the least amount of debt, a whopping 33 per cent less than those in Ontario.

The good news is that more Canadians are debt-free and the average debt load of those living in debt hasn’t really increased over the last year.  There seems to be a little more anxiety felt by those in debt and 51 per cent of respondents have prioritized paying down their debt over saving and investing in their future.

So what caused more Canadians to become debt free over the last year?  Perhaps it was the harsh reality check from haunting headlines quoting the sizeable debt-to-disposable income ratio sitting at 152 per cent.  Maybe it knocked some sense into Canadians who shifted their perceptions on debt and adjusted their spending habits accordingly.

Cheap credit certainly made debt more affordable, and it too may have assisted with an accelerated payment plan … a cheaper mortgage payment means more money towards other debts.  Then, consider the implications of a deteriorating global economy which is keeping interest rates at bay in Canada; and our precarious national real estate market that plays a vital role in the health of our overall economy.  Reading about the slowdown(s) surely acted as a scare tactic to some.  Whatever it was, we’ve seen a promising shift in consumer sentiment towards how to responsibly manage spending and debt levels.

The Economic Forecast from the IMF

Although there is some good news to be shared around non-mortgage debt, the International Monetary Fund (IMF) continues to worry about consumer debt levels and the risky housing market.  They have curbed their forecast for economic growth in Canada to 1.9 per cent this year and two per cent next year – adjusting each by 0.2 (or 9.5 per cent) from earlier predictions.

But consumer debt levels and the unsteady housing market are not the only contributing factors to the dampened outlook.  Since Canada has strong financial and economic ties to the American economy, we are also susceptible to any threats faced by the U.S.  The IMF adjusted their global economic projections during the slowdown which also harnesses the capacity of the Canadian economy.

How Will All Of This Affect Mortgage Rates?  Let’s Ask Our Experts!

In the short term; not a whole lot!  In fact, the majority of our mortgage rate outlook panel has come to the conclusion that both fixed rates and variable rates will not change throughout the month of October.  What’s that I see?  Stability!?

On the fixed side, some panel experts have commented that we my see a decrease in rates as we approach October 31st, marking the year-end for many financial institutions.  However, Jim Flaherty has warned banks in the past to not price too aggressively and Government of Canada bond yields have remained quite steady; both signalling that no discounts are coming.

There is one thing that the panel can fully agree on; the fact that variable pricing will not change in the short term.  They feel as though the Government of Canada is not in a position to raise the overnight lending rate at this point in time due to the outlook for the global economy and its effect on the Canadian marketplace.  So there you have it! Week in Review

There were very few movements over the last week on the best mortgage rates page.  In fact, the only movement was seen in the 3 year fixed rate which dropped 5 bps sitting at 2.59 per cent and the 4 year fixed rate which also dropped 5 bps and sits at 2.99 per cent.

Interestingly enough the 4 year fixed is actually 10 bps higher than the ever-popular 5 year fixed rate!  Usually as the term increases, so do the rates.  So if you’re thinking about taking a 4 year rate you might want to weigh the interest savings vs. potential penalty cost for taking on that extra year. 

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