In Ontario mortgages news this week it seems that the rate wars are over; with RBC and TD Banks recent announcement that they are increasing their mortgage interest rates. Their five year closed interest rate will be increased by .2% to 5.44% and their fixed 4 year interest rate will be increased by .5% to 3.49%. Likely the rest of the banks will follow suit in coming days and weeks.
This change comes amidst growing concerns from bank economists and even the Canadian Government about the ability of some Canadians to manage their high personal debt loads. The CBC reported that the mortgage interest rate increases follow recent comments by Finance Minister Jim Flaherty Thursday, criticizing banks who have called on Ottawa to tighten lending and saying that it’s their job.
In recent Ontario mortgage news, a TD bank economist suggested that Minster Flaherty should further tighten CMHC lending guidelines by increasing the amount of down payment that Canadians have to make in order to qualify for high ratio mortgage financing and it seems that, at least for the time being, Minister Flaherty is sending a message to the banks that he has no intentions of doing so.
Household debt does continue to be a growing concern and a concern that has been repeatedly raised by The Bank of Canada. The average ratio of debt to personal disposable income is now over 150% and economists are predicting that this will rise over 160% in the next year. The CBC and in other Ontario mortgage news outlets reported that TD Bank chief economist Craig Alexander has estimated more than one million Canadian households, or about 10 percent of those that currently have debt, will have to devote 40 percent or more of their income to making their monthly debt payments if rates rise by two-to-three points to more normal levels.
The Canadian Government has already intervened a number of times to tighten up on high ratio mortgage financing requirements in recent years and while Minster Flaherty is not prepared to do so again, immediately he has been clear that he is prepared to tighten mortgage insurance rules again, if necessary.
Canadians who own homes and are currently in debt should be thinking of a plan to deal with their debt. Looking at a home equity loan to consolidate debt is often a great option. Home equity loans can enable homeowners to cut the interest on their debt, reduce their monthly income which increases cash flow and do away with dangerous high interest credit cards.
The fact remains that if an improvement in the job market doesn’t occur resulting in Canadians incomes increasing and Canadians don’t come up with a way to deal with their debt, Canadians will be at risk of CMHC further tightening lending guidelines which will make it more difficult and more expensive for the average Canadian to obtain a mortgage. If you have been thinking about buying a home and have been waiting for the right time, now is it. The wait and see approach could have consequences that include not being able to obtain a mortgage at all.