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Homeowners can expect more interest rate hikes

Homeowners can expect to another half percentage point interest rate hike over the next year, says the chief economist with the Canadian Institute of Mortgage Brokers and Lenders.

Will Dunning said that increase might take a little of the heat out of the real estate market, but he doubts it would be enough to cause prices to fall.

New home sales are strong, prices are continuing to rise and the new housing starts are either growing slightly or remain flat in most parts of the country, he said.

Speaking at a mortgage symposium in Halifax Monday, Mr. Dunning said fixed rates remain the most popular mortgage choice for homeowners, but the heavily promoted combination fixed rate/variable rate mortgages are gaining in acceptance as people looking at the uncertainty in the marketplace see them as a way of managing the risk.

Drawing on the results of a survey he carried out in March, he said most people renewing their mortgages are happy with their situation, generally because their payments on a five-year mortgage are less today than they were when they last renewed. People who took out a one-year mortgage might not be as happy as their payments are likely going up.

The survey also found that 66 per cent of people believe mortgage rates will continue to climb, but only 25 per cent believe the increases will negatively impact their standard of living.

With increasing rates, Mr. Dunning said mortgage holders will likely shop around more, a practice he encourages.

"Negotiate, negotiate, negotiate. The gap between the posted rates and the discount rates is as large as I’ve ever seen."

The posted rate at many major banks is around 6.75 per cent, while the discount rate is as low as 5.3 per cent, he said.

At least part of the reason for the gap is the tremendous growth in the number of companies getting into the mortgage business over the past few years and with an increasing number of players comes heightened competition.

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