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Higher rates mean costlier mortgages

Blog by Patricia Houlihan - Personal Real Estate Corporation | July 12th, 2007

Higher rates mean costlier mortgages

A mortgage broker just forwarded this to me and I thought i would pass it on via blog.  If you have any questions, pls email me through this site and I would be happy to discuss.  The bottom line is that if you are thinking of buying, you might want to move quickly on it; at the very least, get a mortgage hold to protect your rate.  Here is the article:

The Vancouver Sun

Wednesday, July 11, 2007

Higher rates mean costlier mortgages

Borrowing costs for Canadians are up and likely to go higher.

The Bank of Canada raised its key lending rate a quarter point Tuesday to a six-year high of 4.5 per cent, triggering matching increases by chartered banks, and it warned that a further "modest" increase may be needed to rein in inflation in a stronger than expected economy.

The immediate impact will be higher rates for mortgages, loans and lines of credit.

But the higher rates -- and the warning that they may go even higher, plus further evidence of economic strength -- failed to lift the Canadian dollar, which slipped back toward 95 cents US from a 30-year high.

The dollar's slide against the U.S. dollar, which was losing ground to most other currencies, reflected market concerns that higher rates will lead to slower economic growth, and, in turn, lower rates -- a view that was reflected by a drop in Canadian bond yields.

The bank rate increase was widely expected, but Scotiabank analysts noted the accompanying statement was "more dovish than both its predecessor and what the market was expecting."

Those analysts and others felt the bank softened its tone about how much higher rates may have to go.

"We are expecting another (quarter) point rate hike on Sept. 5 to 4.75 per cent, followed by a brief pause to gauge the effect of both the higher interest rates and the recent appreciation of the Canadian dollar," said J.P. Morgan economist Ted Carmichael, adding he expects two further quarter-point rate hikes starting early next year.

The central bank rate hike prompted banks and trust companies to raise their blue-chip prime lending rates to 6.25 per cent from 6.0 per cent, which also led to matching increases in rates on variable-rate mortgages to a high of 6.25 per cent for a three-year open mortgage, and on a variety of loans and lines of credit linked to prime rates.

The further rise in mortgage rates will also hit homeowners.

"For homeowners with a $200,000 variable rate mortgage with a 25-year amortization and floating payments, this rate change means an extra $28.76 per month and monthly payments of $1, 203.38," said Neil Glasberg, president and chief executive of Invis, Canada's largest mortgage brokerage firm.

"However, if the effect of this small increase in monthly payments is calculated for an entire five-year term, this rate change means the mortgage holder will end up paying $2, 406.83 more in interest and $681.23 less off their mortgage principal over five years."