Brace yourselves for interest rate increases

As a real estate lawyer I have been following the interest rates closely.  I have three mortgages that are due to renew and I’ve been hoping to take advantage of continuously low interest rates in 2015.  I regularly follow the news related to interest rates and try to stay in tune with what’s going on.  I am no mortgage broker, but I am an interested party and would like to share my interest rate predictions for 2015.

I think we will get three more quarters before the interest rates go up in fall of 2015.  Typically the government will give a few warnings before the interest rates goes up.  When the interest rates do go up I would expect the following things to happen:

Housing prices will stagnate or drop

The condo market is already in the dumps and we’re seeing housing inventory stay on the market for longer.  There will eventually be a downturn in housing so prepare yourselves now.  Don’t get into a position where you have to sell, or it could cost you some big bucks.  The buyers won’t be out there when the interest rates go up.

More bankruptcies

A lot of people are going pay check to pay check right now and just making payments on the debt that they have.  When interest rates go up on lines of credit and variable mortgages people won’t be able to keep up.  The accompanying financial stress will have an impact on health and decision making and lead to disability and financial ruin.  Forced sale of homes, foreclosures and bankruptcies will increase and again build up inventory of housing on the market.  There will be a decline in net worth and less investment as a result.

Cost of living 

The good news is that gas prices should stay low for a few years and help ease the hit.  I think that the lower gas prices are actually what is driving the Bank of Canada’s decision to increase interest rates.  The lower cost of fuel will help Canadians to better absorb the increase in debt payments.

Brace yourselves

If you are in a variable mortgage, pay it down.  If you have lines of credit roll them into a fixed interest rate mortgage in the next couple of months and don’t hold any credit that relies on the prime rate.  Start a saving plan – cash will be king shortly and the name of the game is to reduce spending and weather the storm.  The reduction in consumer spending will negatively impact our overall economy and it’s time to pay the piper for years of excessive spending and increased debt levels.  Canadians won’t have Alberta’s oil revenues to help provide stability any more – it’s time that we cut everything back and just live with what we’ve got for the next few years.  Those that make it through will have some built up equity and savings and a market full of opportunity waiting for them.  Those that don’t – well it’s time to start fresh and take some chances.

Good luck in 2015 everyone!