Most people take a good look at the low mortgage rates we’ve seen in recent years. Individually, of course, they gave us an ability to get into debt that our parents did not have or that we did not have ourselves before. While the historically low rates we have experienced have allowed many to access property, there are not only good sides to this situation. Whether it is a false sense of security or power or the perverse effects of over-indebtedness on the entire economy of the country, the consequences of a change that would not have been taken into account would affect Canadians individually or collectively.

 

Mortgage rates are essentially determined

Mortgage rates are essentially determined

Depending on whether they are fixed or variable by the bond market or by the Bank of Canada’s policy rate. The bond market benefits from steady and sustainable growth rates and therefore moderate economic growth. The policy of keeping inflation low is supporting steady but quiet growth. This Bank of Canada policy is part of the decisions that are made by the monetary authorities to support the entire economy of the country. Everything is intimately linked and this explains the interest in knowing the destination of the funds borrowed by the households, because significant negative repercussions on the national economic results can be associated, especially in times of unusual tensions.

Household spending accounts for almost 65% of total spending in Canada and is therefore a very important driver of the economy. Household borrowing has been rising steadily in recent years. Mortgage credit, which includes loans for home purchases and mortgage refinancing, accounts for nearly 70% of the total outstanding household credit. The other part of this outstanding amount is consumer credit, which includes lines of credit secured by equity, unsecured personal loans, car loans and credit card loans.

Several factors have contributed to the rapid growth of household debt in recent years. The skyrocketing mortgage credit is in line with the growth in the population and the number of people who own their homes, on the one hand, and the improvement in homeownership, on the other. While home prices have increased (which is a barrier to accessibility), other factors – such as income growth and lower interest rates – have generally contributed to the affordability of homeownership. obtaining mortgage credit. Financial innovation has also contributed to credit expansion. By giving rise to a wider offer of credit products launched with great publicity, it has made these products more attractive and more accessible to households.

 

The main perverse effect of low interest rates remains

loan interest

For individuals, the false sense of security for homeownership or a higher category home and possible over-indebtedness. Collectively, the impact of a financial shock that would affect these borrowers would upset the country’s economy.

So, all good things having an end, let us know how to profit intelligently from this historically exceptional situation, while being certain that the situation will evolve and change. When exactly ? No one knows, but it will evolve, we can be sure and must use caution.