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  • Interest Rates: How Low Can They Go?

  • I must admit, I love studying economics and predicting where our economy and our mortgage rates are going. This is humbling to say, but my forecasts have been average at best. What happened  several days ago with the Chinese devaluing their currency by close to 2% not only caught me by surprise, but the rest of the world as well. Imagine my surprise when they did it again yesterday.

    Why should we care? Good question. When China is lowering the value of their currency, it is telling the world that they are experiencing low growth (as is Canada). You have have noticed the plunge of oil, copper and iron ore as well. This is sending a message that inflation is numb and that a recession may just be around the corner.

    This news affects us all. For example, with the oil price sliding, less drilling will be taking place going forward. Layoffs may start including the Hamilton area, which provides a great deal of steel for piping. Look at Calgary. It has started to affect the real estate market!

    Most importantly, how will this affect Canadian interest rates? I now truly believe that low rates will be here for a while. With no inflation or growth, variable rates seem very attractive to me. Again, locking in for five years at 2.59% is not exactly terrible either. My hunch is telling me that we may be following Europe in terms of rates at essentially zero. If Canada does follow this trend, then the adjustable rate mortgage will be the product to be in. Nobody can predict the future, but China’s bombshell has certainly made me feel different for my future mortgage clients.

    Robert Floris is an independent mortgage broker at Mortgage Architects in Hamilton, Ontario.

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