The federal government along with the Canadian Central Bank is growing increasingly concerned with our low interest rate environment. Traditional thinking stipulates that these low rates are un-natural and in time, when the global economy rights itself, interest rates will rise to 6%-7% back to their natural norm. This is a reasonable expectation although as time goes on the strongest argument in favor of the 6.5% natural interest rate theory is “because it’s always been that way”. Never a good argument, but nonetheless, the best our conservative Canadian custodians can come up with.
So in keeping with this mortgage rate outlook, our government is doing everything they can to keep Canadians out of debt. Everything that is, except raise mortgage rates. They can’t raise the variable mortgage rates without causing serious negative consequences to our export industries and they don’t have any teeth when it comes to impacting fixed rate mortgages. They’ve tried to encourage our oligopoly of banks to tighten mortgage rules and keep rates high. Thankfully that didn’t work. Letting our financial services industry collude and increase their profit margins is a dangerous precedent that could lead to a whole host of antitrust predatory practices.
As time goes on and one year merges into the next, all our government is able to do is tighten lending rules. Several new regulations have been imposed on credit card lending practices, but the bigger bang for your buck is in mortgages. It seems that the Ministry of Finance tightens mortgage rules every 9 months or so. Here we are, June 2012 facing our next round of mortgage rule restrictions. This is becoming code for “interest rate are staying low for the foreseeable future and we don’t know how else to keep you from borrowing”. Well the good news is that if you don’t have much debt then these rules don’t impact you and you can manage your finances as you see fit, regardless of what big brother is thinking.