If you have a mortgage, you are pretty concerned about interest rates! Mortgages grow more costly when interest rates rise. It becomes considerably simpler to keep up with a mortgage when interest rates fall. The issue is that you’re not only buying a mortgage based on today’s rate; your mortgage will be susceptible to changing interest rates over time, often spanning decades.
As a result, it’s critical to understand if mortgage rates in Canada are rising or falling. This is a complicated issue to address; however, we can discuss a few points that may be helpful. In this post, we’ll discuss mortgage rates, but many of the same laws apply to other forms of interest rates, so we’ll use the words interchangeably.
How to Tell Whether Interest Rates Are Rising or Falling
It’s impossible to predict whether interest rates will climb or fall, but there are techniques to make educated predictions. Understanding the status of the national economy, the global economy, and your present social and political situations can help you predict whether mortgage rates will climb or decline.
We understand that seems complicated, so don’t worry. We’ve discussed some of the primary variables that influence interest rates, as well as what to look for in each one, below. Consider each of the indicators listed below to determine if mortgage rates are growing or lowering.
How banks set mortgage rates (the cost of lending)
One of the main things you’ll hear about today is the cost of lending. This isn’t an abstract concept, but it’s not something that’s easy to understand either.
The cost of lending is the amount of money a bank has to make to keep itself afloat. It’s a massive part of what makes lending possible, and it’s no mystery why banks want to make lots of money in this regard.
In theory, the national economy dictates how many people have jobs, how much money they make, and how much money people can spend on homes. If the economy is good, more people have jobs, so people can afford to buy more homes.
Similarly, the economy sets the tone for how many people are looking to put their money in banks to earn interest. The more people that want to make the most of their money, the more competition they make for banks to get their money.
Because the national economy can give a sense of how much money is going around, we may predict how many people will want to invest. The more people are interested in investing, the more competition there is for banks to loan money, and the more that bank rate will rise.
The Impact of Rare Events
Rare events are unlikely to happen and will significantly impact the economy if they happen. Because of this, we can’t accurately predict whether a rare event will happen.
This is why interest rates are so tricky. If a major disaster hits, interest rates could fall through the floor for years. Interest rates can take off if the stock market crashes and the economy is thrown into a free fall.
Competition Between Banks
Banks don’t want to be the only bank lending money for their interest rates to be one percent per year less than their competitors. They have to have a competitive interest rate to make money.
Furthermore, banks want to be competitive with foreign banks. If the Canadian dollar is weak, it’s harder for Canadian banks to compete with foreign banks.
It’s virtually impossible to know whether interest rates will rise or fall based on the current landscape. It’s possible to get a sense of how interest rates might climb or fall in the future; however, you should always consider the impact of rare events.
Ottawa Mortgage Services provides mortgage agent services for first-time homebuyers, self-employed individuals, commercial clients, and more. We also help clients with refinancing, pre-approvals, and debt consolidation. If you’re a first-time home buyer in Ottawa, we can help you find the right mortgage in the right neighbourhood. Get in touch with us today and let us know how we can help!