Recently, the new BOC governor Mr. Tiff Macklem signaled to Canadians that interest rates will remain low for some time. COVID certainly created a historically low interest rate environment. However, this will not last indefinitely. At some point interest rates will rise back to pre-COVID levels. Many borrowers will be unable to service debt levels when interest rates rise and their renewals come up. If so, it is reasonable to state that when interest rates are unrealistically low and we make a purchase of a real estate asset we have not bought real estate. Rather, we have temporarily rented money. That is because the borrower could only hold onto the real estate asset when rates were temporarily low. In other words, if interest rates were simply too low to be sustainable indefinitely, certain particular buyers were artificially inserted into the real estate market. Every borrower must have an exit strategy when committing to a loan particularly at this time.
- Demitry Omrin