RBC Expects Interest Rates to Increase in 2013

By: Daniel Rattanamahattana on January 11, 2013

Mortgage rates remain near record lows in Canada, but that may be about to change, according to several prominent economists.  RBC released predictions that suggest if both the Canadian and US economies continue to improve then interest rates – along with the cost of a mortgage – will rise.

RBC is looking for an interest rate increase of as much as 50 basis points, which means the current 1 percent rate could rise to 1.5 percent.  While this may appear insignificant, a one half percentage point rate increase would cost an extra $1,000 every year on a typical mortgage – an additional expense that could break the budget of cash-strapped households.

RBC Head of Fixed Income Mark Chandler says the increase would only be justified if the Canadian economy continues to improve.  December employment numbers saw Canada add 40,000 new full time jobs to the economy, and lowered the national unemployment rate to its lowest level since before the beginning of the recession.  Chandler credits economic advancements south of the border for the better job numbers, and says industries associated with the US housing market will notice significant improvements throughout the year – which should continue adding new jobs to Canada’s economy.

Chandler says Canada is the only developed country that should even consider raising interest rates.  “We see Canada as a bit of a canary in the coal mine for developed fixed income markets, and that means we think it'll be important to watch.”

If the bank’s projections prove accurate, mortgages will be much more expensive by the end of the year.