Fear not rising interest rates

TORONTO — Talk of rising interest rates tends to make homeowners jittery and, if you have a big mortgage, you may be feeling extra nervous.

But while Bank of Canada Governor Stephen Poloz may have made some people uneasy when he spoke in a televised interview last week about the likelihood of rising long-term fixed rates, experts say not to panic.

Peter Veselinovich, vicepresident of banking and mortgage operations with Investors’ Group in Winnipeg, says that while rate increases are expected, any change will not be “as dramatic as the sound bite that comes out of an interview with Mr. Poloz.”

“People immediately assume that means (rates) continually rising over a short period of time and that it’s a cause for concern,” Veselinovich said.

“It’s certainly not a ‘sky is falling’ type of message. It will be modest increases.”

Poloz said last week he expected long-term interest rates to rise in response to tapering by the U.S. Federal Reserve, which has already decided to reduce its monthly, $85-billion bond purchases by $10 billion.

A change in interest rates would translate to higher mortgage payments, although that would only apply to people with variable ones, since fixed-rate mortgages don’t change for the duration of their term.

Variable mortgage rates usually hover around 2.5 per cent, since they are based on a floating rate based on prime and are adjusted with each change in prime. Rates have been low since the financial crisis of 2008.

Gurinder Sandhu, Re/ Max’s executive vice president and regional director for Ontario and Atlantic Canada, says that while interest rate considerations are important, they aren’t the main factor to keep in mind when deciding on a mortgage.

“The remarks that Poloz made, as a reaction to the change in the easing policy in the U.S., it makes sense what they’re saying,” Sandhu said. “But nothing is out there that’s indicating that either the Bank of Canada or our finance department is going to make any drastic changes going forward.”

Any change will be small and “easily digestible,” he added, especially in a healthy real estate market filled with educated consumers.