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July 04, 2021

Rise in interest rates expected in 2014

Buying your first home is one of the biggest decisions you will ever make.

While 31 per cent of first-time homebuyers expect interest rates to stay the same over the next five years, that just may not be the case, according to market projections.

BMO Economics reports that interest rate hikes are expected in the second half of 2014.

Frances Hinojosa, Mortgage Expert, BMO Bank of Montreal, notes that the current projections indicate that the cost of borrowing to own a home will gradually increase and prospective homebuyers should take that into account when considering purchasing a home.

"It remains vital for Canadians -- particularly homeowners -- to be prepared for the inevitable rise in interest rates," she says.

Across the country, those living in Ontario are expecting rates to remain the same (32 per cent); while those living in the Prairies are less optimistic (27 per cent).

The BMO First-Time Homebuyers' Report found that a majority of first-time buyers (76 per cent) are willing to "stress-test" their first mortgage against a higher interest rate.

Those in Ontario (80 per cent) are the most likely to stress-test their mortgage, while those in the Atlantic provinces are least likely (62 per cent).

Hinojosa adds, "For both first-time and repeat buyers, it's essential to stress-test their mortgage against a higher interest rate to ensure they can manage a rise in costs as a result of any potential increases in interest rates down the road.

"It's also wise to choose a mortgage with a shorter amortization, which can help homeowners become mortgage-free sooner."

Before house hunting it makes good sense to do your research as well as get pre-approved for a mortgage so that you know just how much house you can qualify for before you set foot in open houses.

However, even if you have been pre-approved for a substantial mortgage, make sure you can actually afford to carry it. Carefully go over your budget to see how much mortgage you can realistically afford without compromising the lifestyle you want to live.

You can use a handy online mortgage calculator to give you an idea of how much you can afford and other homebuying tools that are available.

By Donna Donaldson, MSN Money

Are you planning on buying your first home? Are you concerned about an increase in interest rates and your ability to carry a mortgage?



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...