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Canadian Mortgage Economy

January18
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Mortgage Rates and the Economy


Mortgage rates are directly related to interest rates and economic indicators. They cannot remain stable for longer time durations. It is also quite natural for mortgage rates to fluctuate more than once within a single day. Mortgage rates change for a number of reasons. These reasons and factors of change can be as simple as the consumers themselves. The buying habits and the focus on saving or spending is the most basic way in which the mortgage rates might be affected. Because mortgage rates are linked with long term decisions, they have a long term impact as well. These rates are also inter-linked with the interest rates and inflation rates. The economic indicators like the GDP, CPI and similar other indicators too frame the way these rates may fluctuate.  Mortgage rates are part of a whole cycle of economy which starts with the level of economic stability.

The Canadian Economy

Canada has been seen to be one of the most stable economies of the world today. It has also been said that this country is the safest place in the world to take shelter. The reason for this is the well-regulated financial sector, the housing and real estate sector’s high level of stability and the overall economic stability. The country was also able to avoid the subprime mortgage crisis completely. Even with the global economic crisis, this economy was able to sustain itself quite well. And once the international has started to get back to the level of stability, Canada is all-set for further growth.

Unemployment did hit the country in 2011 when statistics started showing signs of trouble. The increase in unemployment rates in the country had an impact on real estate prices and Canadian mortgage rates as well. It was being predicted that the Canadian mortgage and real estate market will face turmoil in the coming year. There was a rising fear at the same time that the recession might finally hit the Canadian economy too.


However, the Canadian economy has been showing signs of great stability and sustainability. They have kept their economic advantages safe from the global effects. The economy has been able to quickly revive itself and employment opportunities are again opening. It is also predicted that the mortgage and real estate sector will also be receiving a boost once again. The financial system is working on creating a shock-proof economic structure that will not be highly dependent on global economic indicators.


The Types of Mortgage Rates in Canada


There are two basic types of mortgage rates in Canada. The basic one is the fixed rate. As the name suggests, this is a pre-decided rate of interest on the principle amount. The monthly amount that has to be paid remains the same and is not dependant on any other factor. People prefer these options as it helps them plan their finances according to these payments. But the problem in this option is that these rates are often undisclosed until the borrower signs up for the loan or mortgage.


In contrast to the fixed mortgage rates, the adjustable rates are variable. The adjustable Canada mortgage rates do not remain the same throughout the borrowing period. They can be adjusted according to market conditions. This allows borrowers to gain from the low interest rates during certain time periods. The Canada mortgage market has many borrowers who prefer this option because it allows for flexibility in payments. The payments typically start off with lower interest rates and then pick up with time.


The Mortgage Trends


Canada’s mortgage and real estate market experienced a bit of trouble in the last year. 2011 saw many changes in policies and trends in this particular sector of the Canadian economy. The housing prices rose by 4.6% percent as per the statistics in November and even with predictions that corrections will be made, the mortgage rates rose by 7%.


The year also marked the most surprising trends in consumer behavior in the Canadian mortgage markets and the new regulations that were introduced. Some of the biggest changes that appeared in the sector were:


The government introduced stricter mortgage rules even though there were claims by economists that the individual consumer in Canada is very careful while making decisions. They also changed the policy regarding the 35-year amortization and the refinancing taking place over 85%. The government also introduced tougher policies for non-bank lenders and eliminated the government insurance over the secured credit line.


The other surprising trend in the Canada mortgage and real estate market was the lower fixed rates. Economists explained the lower rates for longer durations to be a positive trend in the economy. The returns and yields on government issued debt instruments experienced a hike although the benchmark 5-year government yield fell by 115 basis points.


What Do Economists Say?


The economists are keeping a close eye on the Canada mortgage and interest rates as well as the real estate sector itself. They have been pushing for lower fixed rates for longer durations throughout the past year. They believe that this will allow the financial sector to remain stable. Borrowers will be able to get better bargains and better mortgage prices. Real estate prices will once again become as stable as they were and that will become an additional advantage for the individual consumer.


The Canada mortgage market is predicted to remain stable for both borrowers and lenders. Even with the increased strictness in government regulations, the market is still quite beneficial for stakeholders. The economy had not been shaken much by the global economic crisis. The European crisis did have a bit of an impact on the economic stability but that too was relatively short-lived. The Canadian economy will get back to its former stable and sustainable state in the coming year according to the popular opinion amongst economists and experts in the country. This is why the future looks bright and vibrant for the Canada mortgage market and the real estate sector.



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