Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Bank-of-Canada-5-year-bond-yield-sept-2013Bond yields are climbing up fast. As a result mortgage rates are walking north too. At first glance it may look like that the lenders are making money – but that is not the case. As a matter of fact lenders – just like us – love low interest rate.

When interest rate go up then first to feel the pinch is the stock market. Initially the effect is not very prominent – but as days pass by – leveraged investing market will shrink. If you can beat and exceed the inflation by investing in GIC then why will you invest in high risk portfolios?

High interest rate also hurts businesses. The current market is seasoned with this low rate eco-system. A sudden shock will just increase conservatism in the market and things will turn bad.

Regulators and government generally take time to take actions. If OSFI asks the lenders to do something then it will give them ample time to adjust. Government will issue hundreds of warnings before taking any step. But the bond market is barely controlled by anyone. Some large investors may have a mild influence on the market but compared to the foreign investment they are small.

If the bond yields keep going up then we may see some reverse action.