Activity within the U.S. Federal Reserve may soon cause mortgage rates in Canada to surge, according to a Toronto Star report.

The U.S. Federal Reserve is set to cut back on its economic stimulus -- the economic shot in the arm responsible for low interest rates over the past five years. During that time, the Fed was actively purchasing U.S. Treasury Bonds each month by literally creating the money themselves. To buy the bonds, the Fed was effectively writing cheques which expanded consumer credit, thus making it considerably cheaper to take out loans.

So how does this affect Canadian homeowners? The direct result of the Fed's activity is a gradual increase in long-term mortgage rates, say analysts. This also affects five-year fixed-rate mortgages, which remain the top mortgage products in Canada.

Last year, 82 per cent of new mortgages were fixed-rate terms, according to the Canadian Association of Accredited Mortgage Professionals.


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