BMO Raising Rates

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Is it Time to Freak?

"The Bank of Montreal says it is raising its fixed and variable home mortgage rates by 0.1 percentage points, effective Tuesday." (CBC News) They are looking at the rising bond yields and besides they have not raised rates for the last 4 months (poor diddums) even though the Canadian Bank rate has not been raised for the last 39 months AND the CPI has plunged to 0.7%/yr.

It is not inflation that is a concern; risk is the concern even though most mortgages are insured against default thanks to you dear taxpayer via CMHC. Your taxpaying largess has resulted in your housing cost doubling in the last decade. You have financed the greatest bubble on earth and you have subsidized the Banks via government social welfare for profit seeking global corporations who want to keep their shareholders happy.

Is it time to freak? Probably not, but it's always a good time to plan. When the spread between the BoC and the 5 year retail mortgage rate widened from April 2007 to Dec 2008, the TSX Real Estate Index rolled over and plunged into the pit of gloom.

Before you sign up for that big mortgage, make sure your household income does not have a shorter amortization than the loan. See my Affordability Page and do an analysis of your real estate holdings to see if they can handle more expense and less income. (Yield Calculator)

RISING RATES MEAN

• The cost of everything financed goes up in the private sector as well as at the provincial and municipal level.
• Unless private and government sector earnings increase, then real incomes continue eroding and less spending occurs on other stuff outside the cost of shelter.
• Less spending means less productive activity which for a global corporation is no big deal, they can move production to low wage, blind oversight environments or they can simply increase their yield on demand with or without government sanction.

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