Personal Finance

How long is the current interest rate sustainable?

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  • Oct 3rd, 2014 10:59 am
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[OP]
Deal Addict
Jan 20, 2014
2391 posts
513 upvotes
Ottawa

How long is the current interest rate sustainable?

The jig has to end sometime right?

Aren't low interest rates just enticing people to take out more debt than they normally would? What's gonna happen when the interest rate rises to sustainable levels?

For those of you more in tune with this stuff, what SHOULD the current interest rate be?
54 replies
Penalty Box
Apr 16, 2012
3565 posts
683 upvotes
Greely
crimsondr wrote:
Sep 11th, 2014 2:54 pm
How do raising rates benefit you? I thought low rates benefit my investments and variable rate mortgage.
I believe the theory is that it benefits those who can't afford a home priced at current levels and have a non-existent stock portfolio.
Deal Fanatic
Mar 24, 2008
5614 posts
1713 upvotes
Toronto
crimsondr wrote:
Sep 11th, 2014 2:54 pm
How do raising rates benefit you? I thought low rates benefit my investments and variable rate mortgage.
1) The hope is that the housing market will drop if the interest rates rise. I may look into an investment property if that happens. I own a home that's almost paid off so the rising mortgage rates don't affect me personally.

2) I don't use leverage for stocks and I hope the economy slows down a bit (stock prices come down) so I can buy more since I am in the accumulation phase.

3) We'll get better rates on fixed income. Right now, it's barely keeping up with inflation.
Deal Addict
Oct 7, 2007
4557 posts
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AtlsNBP wrote:
Sep 11th, 2014 2:42 pm
The jig has to end sometime right?

Aren't low interest rates just enticing people to take out more debt than they normally would? What's gonna happen when the interest rate rises to sustainable levels?

For those of you more in tune with this stuff, what SHOULD the current interest rate be?
Totally agree but there are a lot of opinions out there that say interest rates are most likely going to remain low for quite some time. I don't know how many times now we've heard that interest rates will be raised in the next few months and then when the time comes the dates get pushed out again. I also think that the economy is doing a little bit better than it was before yet this still isn't causing the US Fed to raise interest rates which means Canada will probably not raise its rates either.

I personally hope that interest rates revert to somewhat normal levels so that normality can be achieved in the economy (i.e. currently the economy is so real-estate focused that I fear we are not well-diversified in terms of knowledge, training and economics for the future) but who knows when this might happen. I would be happy if rates were raised even one percent because this would be a significant improvement from where they are currently at.
Deal Fanatic
Mar 24, 2008
5614 posts
1713 upvotes
Toronto
sjyoung wrote:
Sep 12th, 2014 2:49 pm
This article from the Globe & Mail is about three weeks old, but it indicates that most industry experts (as opposed to RFD experts ;) ) think that interest rates won't increase until at least Summer of 2015.

http://www.theglobeandmail.com/report-o ... e20186514/
Summer of 2015 is only 8 months away which is in line with the article that I posted that US might raise rates around March 2015. If you look at the track record of these so called "experts", I wouldn't be surprised if they change the rate increase forecast once again to summer of 2016. :lol:
Deal Addict
User avatar
Jun 28, 2007
3859 posts
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ksgill wrote:
Sep 12th, 2014 3:05 pm
Summer of 2015 is only 8 months away which is in line with the article that I posted that US might raise rates around March 2015. If you look at the track record of these so called "experts", I wouldn't be surprised if they change the rate increase forecast once again to summer of 2016. :lol:
Short rates are likely to rise as the Fed moves their policy rate off from "emergency lows". But I think longer term bond yields are unlikely to move by much - there is alot of hedge funds and other central banks loading up on Treasuries (and GoCs) to keep rates at the long end lower than where they have historically been. Add to that, a lower expected "neutral" policy rate, and that keeps bond yields relatively low over the next five years IMHO........
Deal Fanatic
May 1, 2012
8229 posts
5505 upvotes
Markham
naggz wrote:
Sep 12th, 2014 3:32 pm
Let me check....

[IMG]http://horoscope.com/horoscope/images/g ... alball.gif[/IMG]
Thank you, finally some sense.

No one knows. I bet the Fed doesn't know, and the BoC doesn't know. The big-5 certainly don't know... and by that token... the RFD crowd does not know. Could be next month, could be in 10 years. Who knows.
Sr. Member
User avatar
Jan 29, 2008
634 posts
92 upvotes
naggz wrote:
Sep 12th, 2014 3:32 pm
Let me check....

[IMG]http://horoscope.com/horoscope/images/g ... alball.gif[/IMG]
This is ridiculous. The energy projected by this crystal ball is all wrong, it's showing result for a short term prediction, i.e. interest rates rising within 2 weeks, and that's clearly not going to happen. The question about interest rates clearly require a long term prediction and requires a much more experienced wizard with a much bigger crystal ball.

Whoever owns this needs to check the crystal for contaminants.
Deal Fanatic
Jul 3, 2011
5138 posts
2272 upvotes
Thornhill
Interest rates will rise when exports and investment spending grow faster than the housing industry; household debt decreases and the CDN $ has devalued to a level satisfactory to the IMF or

The housing industry continues accelerating both in price and construction.

Either way it will be in early 2015 (spring). I'd say by no later than April 30th.

That’s in keeping with the IMF’s projection which already spurred the devaluation of the CDN $ with their November 2013 release; the tightening of mortgage rules; the strengthening of OSFI.s role and the recent release that CMHC’s insurance in-force is declining –ergo household debt.

If you want to be able to make a reasonable assessment of the direction you wish to take you may want to familiarize yourself with the stages of response to the economic timetable Canada’s government is supposed to follow as per the IMF. You can take it as an economic outlook or for what it is – a mandate disguised as a projection.

http://www.imf.org/external/np/ms/2013/112613.htm
Deal Guru
User avatar
Mar 31, 2008
10433 posts
1584 upvotes
Toronto
KingKuba wrote:
Sep 12th, 2014 7:55 pm
Forever...
I second that. In fact, (forever x forever )^2

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