Donald Trump’s victory in the November 8 U.S. presidential polls has provoked much unease among global markets apprehensive of the Republican candidate’s preference for an isolationist policy. In turn, this uncertainty may lead to greater burdens for Canadian consumers, according to a mortgage planner.
In a November 11 contribution for The Globe and Mail, mortgage planner Robert McLister cautioned that regulatory changes that would take effect on November 30 will force lenders to implement hikes that might affect consumers looking for refinances, rental financing, >25-year amortizations, and >$1-million mortgages.
“[On] Nov. 30, insured lenders must start testing borrowers to see if they can afford a payment based on the Bank of Canada’s five-year posted rate, currently 4.64 per cent,” McLister wrote. “This leaves banks and credit unions – most of which have higher rates – as the main source of financing for folks with higher debt-to-income ratios.”
This will complicate the potential lending environment once Trump is fully handed the reins of power on January 2017, as the existing record lows in Canadian mortgage rates might disappear if the U.S. president-elect pushes through with his insular policies.
“U.S. interest rates have surged as Mr. Trump’s trillions in expected infrastructure spending and tax cuts, protectionist job policies and deregulation will fuel economic growth, and hence inflation. Bondholders dread high inflation,” McLister stated.
“With Canada so linked to the U.S. economy, our rates are flying too. The billion-dollar question is whether Mr. Trump erects trade barriers with Canada that stunt our growth. That would keep a lid on rates,” he added.
Some insured rates are currently hovering below 2 per cent, a level that is not likely to last in a Trump administration, he added.
“Could the Bank of Canada cut rates again? Sure. But that doesn’t mean lenders are going to drop their prime rate (much, if at all),” McLister explained. “So a variable at a similar rate to a long-term fixed gets you maybe 0-30 basis points of potential benefit if rates drop again, in exchange for God knows what upside rate risk in a Trumpian economy.”
“Unless our economy seriously underachieves, despite Mr. Trump’s economic renaissance, we might look back on this month as one of the best times in history to get a five-year fixed rate. And if it’s not the best time, it will be right up there,” McLister concluded. “So if you’re thinking of consolidating debt, get off the fence now.”
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