Borrowing rates are rising — should Canadians be worried?

Canadians are currently enjoying a low-interest environment, with interest rates still trending lower compared to last year. However, it appears borrowing rates are now starting to creep up.

In a think piece in Better Dwelling, market watcher Daniel Wong said the effective interest rates reached 3.72% as of 22 November, up 0.54% last month.

"This represents a 6.06% decline compared to last year. Not a big increase from last month, but we’re at the highest level in a few months," Wong said.

Wong said the gap between last year and this year's has started narrowing.

"It may not sound like much, but it does make a difference on how much house you can buy," he said.

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Compared to last month, a borrower's purchasing power would have already dropped 0.20% with mortgages at the current the index rate.

"Over a longer term, that purchasing power is now down 3.72% compared to 5 years ago. Or, if you’re looking at it the other way, you’re paying a lot more interest," Wong said.

However, rates are still relatively low. While global conditions could cause interest rates to fall further, the resulting scenario is not as good as it sounds.

"In that scenario, these macro pressures typically drive prices lower as well. If you’re bullish on house prices, you should also probably be bullish on rates. The gap between last year’s rates and this year’s are currently narrowing," Wong said.

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