If we will be seeing rates consistently go up, the other question is how quickly will they rise? These are the big questions that will shape everything – real estate, housing, equity markets, the economy, and ultimately – politics. Individuals and families who get these questions right will thrive and prosper in the coming years. Through this higher interest rate environment, please don’t hesitate to keep Tembo’s ability to offer rapid, creative, and innovative lending solutions in mind – whether you’re looking to renovate and increase equity values, or you need to consolidate and simplify your debts, or you need a quick second mortgage for a deposit on a new or additional property. Higher interest rates means greater risks and costs for banks which means slower processing, greater scrutiny, and more limited options.
Let’s look at history in our attempt to scope out the future. In their last attempt to increase rates to more ‘normal’ levels the figure rose from 0.50% in May 2017 to 1.75% in January of 2019. That equated to five hikes over that period. Inflation was under total control through this period and economic conditions were decent and improving – unlike today. This was the most recent ‘significant’ increase in rates. From June 2004 to August 2007 when economic conditions were excellent and inflation low, rates increased from 2% to 4.25%. Always keep in mind that the historic norm since the early 1960s has been rates of some 6%, we’re only at 0.50% right now. From 1997 to late 2000, rates increased from 3% to 5.75%. From 1987 to May of 1990, rates jumped from 7.3% to 13.8%. This was in the aftermath of strong inflation and the popping of the late 80s real estate bubble that Tembo has written about many times. Keep an eye on inflation and the BOC and always keep Tembo in mind for a second mortgage, debt consolidation solutions, an equity advance for a renovation loan, and so much more.
So, the conclusion is that when the bank starts to shift to higher rates, it generally sticks to that trajectory over a number of years. There are usually at least a handful of rates over the higher rate period. Increases have historically been .25 basis points, but even in good economic conditions, rates have been occasionally boosted by .50 basis points. In periods of high and growing inflation rate increases are stronger and the ‘higher rate period’ is shorter than in periods of healthier macroeconomic fundamentals. Take advantage of your increased housing equity to consolidate your debts, pay down liabilities fast, and simplify your payments – please visit www.tembofinancial.com and give us a call at 1-844-238-6717!