Flaherty pressurized to raise mortgage rates


Canada, 19th March: Canada finance minister Jim Flaherty is under pressure to control household debt and housing market by increasing interest rates on mortgages in Canada.

So, Canadian economy is showing signs of an imminent increase in the mortgage rates to contain Canadian household debt. Canada’s household debt is, undoubtedly, a big risk for the nation and Canada cannot afford to wait any longer, said Craig Alexander, the chief economist of TD Bank.

And Douglas Porter, deputy chief economist at BMO Capital Market, is also hinting at the likelihood of hikes in Canadian mortgage rates by nearly 50 percent in the current year is going up with every single day.

Suggestions for controlling Canada household debt-- Alexander has asked Flaherty to select any one of the three suggestions for controlling Canada household debt.

These include—

• Raising the minimum down payment from five percent to seven percent;

• Decreasing maximum amortization on mortgages from 30 years(currently) to 25 years;

• Introducing a test for loan seekers to make sure their ability to make payments in case of hike in mortgage rate to 5.5 percent.

The message by Alexander is clear. Canada must not do anything that might hurt Canadian market adversely. Average household debt of Canadians has already touched a new record. And the probability of increase in fixed-rate mortgage rates is quite high with increasing optimism in the bond markets about growth in Canada economy as the US is on road to recovery from the economic crisis

. Increasing profits in Canada’s bond market may lead to an increase of around half a percentage in the interest rates on five-year mortgages by the end of the current year, Alexander adds.

Canadians must exercise financial wisdom—Alexander ruled out any financial crisis threatening the economy of Canada in the near future. In fact, aims of such steps was to help Canadians become financially prudent and to get prepared for any unforeseen shocks in the economy including increased interest rates or rise in joblessness.

He maintained that a slow and a steady increase in mortgage rates will help to control mortgage borrowing in Canada while keeping Canada housing market stable.