Mortgage rates expected to remain steady despite recent spree of hikes

Despite a topsy-turvymortgagelandscape that has seen rates go up unexpectedly, don't expect your monthly payments to skyrocket any time soon, economists say.

"I think that mortgage rates will remain relatively stable," CIBC deputy chief economist Benamin Tal told CBC News. "I just don't see anything that will send them up."

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Mortgage rates havebeencreeping up over the last few months a fact that may have many homeowners scratching their heads.

Usuallya turbulent economy, like the one Canada is currently facing, with oil below $30US a barrel and theloonielower than70 cents US, would be accompanied by adrop in mortgage costs, especially fixed rates.

That's because fixed mortgages are tieddirectlyto government bond yields, which are atan all-time low as risk-waryinvestors steer clear of the stock market.

Still, all the major banks have announcedmortgage-rate increasessince December.

CIBCincreasedits three-year fixed rate by 10 basis points to 2.59 per cent. RBC upped its special offer on afive-year fixed mortgageby one-tenth of a point to 3.04 per cent. TD Bankincreased its one-year and four-year closed special rates by one-tenth of a point each. Scotiabankincreased its variable rate by 10 basis points.

Government regulations and global forces

RobertMcLister, a mortgage planner at intelliMortgageandthe founder of RateSpy.com,told Canadian Press the hikes stempartly fromnew government regulations designed toreducerisk in the country's housing industry, including plans toforcethe banks to have more money set aside in case the mortgage loans on their books go bad.

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"It's going to be more expensive for banks to hold mortgages," McLister said."They have to put aside more capital and when you put aside more capital, then you can't do other things with it.And that costs you money, so that gets baked into pricing."

But it's more complicated than that, said Tal.In order to understand Canadian mortgage rates,youhave to look at the global picture.

"Given the uncertainty and given the fact that risk profiles are rising globally, I think that the Canadian banks have to pay more to fund themselves," he said.

Still,there's no reason for homeowners and would-be homeowners to fret overmodest hikes to already low rates,John Andrew, a real-estate professor from Queen's University in Kingston, Ont., told CBC News.

"I think the rise we've seen in mortgage rates isn't really very significant," he said.

Bank of Canada holds key rate steady

Meanwhile, the prime rate the interest rate commercial banks charge their most credit-worthy customers is unlikely to change substantially any time soonafter the Bank of Canada announcedWednesday it would leave its benchmark overnight rate unchanged at0.5 per cent.

Changes to the overnight rate theinterest rate at which big banks borrow and lend have traditionally had major implications for Canadian mortgages, as the big commercial banks would follow inlockstep with changes to their prime rate.

But even ifthe Bank of Canada had announced a rate change on Wednesday, theimpact on mortgages likely would have been minimal.The central bank's power to influence the housing market has dwindled in recent years, economists say.

When the Bank of Canada slashed the overnight rate by 0.25 per cent a year ago, commercial banks only cut their prime rate by 0.15 per cent.

"That's maybe something the [Bank of Canada] should look at, because the ability of the bank to really impact market rates and activity is very limited," Tal said.

Rates will go up eventually

Despite the steady forecast for the next year or two,Andrew advisesnew homeowners or those looking to renew their mortgages to choose a fixed, or locked in, rate with regular monthly payments that aren't tied to theprime.

"I'm a little gun-shy about variable-rate mortgages, just becauseyou're in a period where mortgage rates are so low and there isn't a widespread expectation in the market that they're going to rise dramatically," he said.

"I'm a big one for certainty, and I think the big uncertainty is rising rates. We know they're going to rise we just don't know when and we don't know by how much. So do you want to get into a variable situation where you've got no control over that?"

Marcus Tzaferis, a mortgage broker with MorCan Direct, disagrees. There are good deals on variable-rate mortgages right now, he said, especially fromnon-bank lenders that won't penalize you if decide to lock in.

"I've been doing this now for about 15 years nothing happens all that quickly. This tool of inciting some fear that rates are going to go up it almost worksin the banks' favour. The banks make more money on the fixed rate," he said. "I don't think we're going to see rates increase any time soon."

Tal said when it comes to fixed versusvariable, it all comes down to the individual. There's no one-size-fits-all for mortgages. But, he warned,the pendulum will eventually swing back, so it's best to plan ahead.

"If you're buying right now, it's very, very likely that five years from now, when you renew, rates will be notably higher," he said. "Ifyou cannot finance your mortgage at rates that are one to twoper cent higher, then you have to think twice about the type of house that you want to buy."