Re:Bank of Canada increases overnight rate target to 1 per cent
by alkonaut on Thursday September 07, 2017 @06:33AM
(#15190489)
> will suddenly have to be qualified for 6% loan interest within the next few months.
What if they are not? If the loan isn't granted, then the lender will have to go elsewhere, and worse case they will have to sell the property, possibly at a loss. That would seem like it just exposes the bank to more risk? Situation here is that you simply keep paying and the bank doesn't care whether you pay 110% of your income because you are unemployed, or 10% of your income because you got promoted - so long as you are paying.
Stress tests/qualification can therefore be against a "high interest rate" which is typically 7-8%.
What's interesting is that even a 4% interest rate at this point would probably lead to a recession because people are so highly in debt that they would cut saving/spending immediately. That recession would likely see interest rates plummet again. So the "new equilibrium" is a scary low.
What if they are not? If the loan isn't granted, then the lender will have to go elsewhere, and worse case they will have to sell the property, possibly at a loss. That would seem like it just exposes the bank to more risk? Situation here is that you simply keep paying and the bank doesn't care whether you pay 110% of your income because you are unemployed, or 10% of your income because you got promoted - so long as you are paying.
Stress tests/qualification can therefore be against a "high interest rate" which is typically 7-8%.
What's interesting is that even a 4% interest rate at this point would probably lead to a recession because people are so highly in debt that they would cut saving/spending immediately. That recession would likely see interest rates plummet again. So the "new equilibrium" is a scary low.