U.S. Fed poised to raise rates in 2022
The U.S. Federal Reserve has already announced it will reduce its bond purchases which will reduce Quantitative Easing. Flip this around and they are effectively adopting a policy if relative Quantitative Tightening that will lead to higher mortgage bond yields and higher fixed mortgage rates.
Canada is not an island and investor money moves freely between the G7 economies. A rise in yields in the U.S. will likely spill over into Canada. The Bank of Canada also has plans for Quantitative Tightening, so we should expect a 5-year fixed mortgage rate to rise closer to 3 or 4 percent.
How about variable rates?
The U.S. Fed, in line with the Bank of Canada, is expected to raise its target rate in 2022 between 0.5 and 0.75 percent. In Canada, that means a variable mortgage could rise from around 1.6 percent to roughly 2.2 percent.
On a Home Secured Line of Credit (HELOC) with a $100,000 balance that is a rise in annual interest costs from $1,600 to $2,200. That's a 40 percent rise in interest carrying costs!
