Tag Archives: loans

Four ways low interest rates affect you

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The Bank of Canada has been promising lower interest rates for a while, but again it disappoints. There are four reasons that you need to be wary of the current interest rates:

First, the lower interest rates are going to cause investors to not be able to get good returns on their safe investments. If you have investments in them, you cannot expect to get better returns for quite a while thanks to the enormous hesitation to increase interest rates.

Second, you now need to save more money for your retirement, because thanks to having less returns on your investments, you will not have as much money in the future. Even your pension might be affected, as defined-benefit pensions will not be able to meet their obligations thanks to all of the uncertainty out there.

Third, those who are heavily in debt have the risk of losing their jobs due to low interest rates, which are really just signs of global softness.

Finally, the housing market is continually at risk, with fewer people able to afford housing even though interest rates are low.

Interest rates will likely remain low well into 2013, maybe increasing by only one percentage point, so these problems will remain.

Canadians still have a long way to go on their mortgages

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The Bank of Montreal reported today that the average Canadian has about fifteen years left on their mortgage. Twelve to twenty percent of Canadians, depending on the province that they live in, have more than twenty-five years to go on their mortgages. This is all on the heels of new government regulation that are supposed to lower demand and prices on home mortgages. These new regulations will decrease the refinancing limit on houses to 80% of home equity while limiting the amount of help that the federal government can make available for insurance from the Canadian federal government to home owners. The senior economist of the Bank of Montreal estimates that the prices of homes will need to fall an average of three percent in order to neutralize the impact of amortization rule changes on mortgage payments. It is his hope, and the hope of many others in the industry, that these new rules will help th real estate market landing softly back on its feet rather than hardly and dramatically. The study goes on to say that Canadians made larger payments than they had to and some even paid lump sumps on their houses. Unfortunately, twenty four percent of those surveyed could not afford to do so.