Thursday, 21 June 2007

Interest Rate Increase

In April I noted at the blog that signals on interest rates were starting to change. Before then most analysts had predicted rates would go down this year. Now it is clear rates will go up in July and many people are starting to panic about higher rates. The situation is stabilizing and inflation figures out this month show that inflation is not the problem the Bank of Canada thought it was. Rates will still go up as promised but maybe only a quarter instead of the half percent everyone was expecting. I predict that will be it and the rates will then stabilize again with no changes for a while. Canada has survived the high dollar without too much damage to the economy and that has opened the door to higher rates which normally would take our dollar higher. I believe that if the dollar rises further and hits par or higher with the US dollar there will be trouble for Canada. I suspect the Bank of Canada is thinking that too and will hold the line after the July increase.
What this means is if you agree with me it makes sense to go with variable rate mortgages and not lock in out of concern that rates are going to keep rising. It will take a big interest rate increase to offset the savings of the variable rate so if you can handle some risk go with the variable rate.

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