• Variable Rate Update – May 26, 2016

  •  No Changes to Bank of Canada Rate!

    At 10:00 am EST, Wednesday May 25th, 2016, the Bank of Canada maintained their overnight rate, which in essence means no change to the prime interest rate. Remember the prime rate affects your variable rate mortgage, line of credit and/or student loans.

    There has been on-going pressure to consider dropping their rate further in order to relieve publics concerns with the current economic conditions.  This is still good news for the amount of interest, that you will pay, but we also have to recognize that it is a reflection of the current housing market and ailing economy.

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    The Government has made recent changes to the mortgage rules to keep control of the over-heated housing market, such that we are currently seeing in various provinces across our country and we Ontarian’s are especially feeling the pinch when buying properties right now.

    However let’s not forget that this is a great time to take advantage of such historical low rates and chat to your financial advisor about a Tax Free Savings Account or some RRSP contributions to trigger a potential income tax refund. You might have missed the RSP deadline for this year but it is never too late to start saving and planning for the future.  If you don’t have a financial advisor, let me know and I’d be happy to recommend one to you.

    Our Principal Broker, Salma Champsi has this to say:

    “Anyone who¹s had to cough up a mortgage penalty or deal with refinance limitations can vouch for one thing: Mortgage restrictions can easily outweigh small (e.g., 0.10 to 0.15 percentage point) differences in interest rates.

    It¹s tough to predict your refinance needs three or four years out. Statistics show that well over half of Canadians with a mortgage renegotiate before their term is up. And the average five-year borrower changes their mortgage every three-and-a-half years.

    That¹s why it often pays to trade a slightly lower rate for more flexibility, unless you know you won¹t change your mortgage during its term. A cheap rate can certainly save hundreds of dollars up front. Just be sure it doesn¹t cost you thousands in penalties down the line.”

    On another note, are you carrying a balance on any lines of credit or credit cards right now where the interest rate is over 3%?   If so, this is the perfect time to chat about a potential debt consolidation or refinance – let’s start saving you some unnecessary interest and getting to your mortgage burning party sooner! Maybe you are planning a renovation project soon or purchasing a second home or rental property – chat to me about your options … I’d be happy to make those plans into realty.

    So to continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about their decision today:

    The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

    The global economy is evolving largely as the Bank projected in its April Monetary Policy Report (MPR). In the United States, despite weakness in the first quarter, a number of indicators, including employment, point to a return to solid growth in 2016. Financial conditions remain accommodative, with ongoing geopolitical factors contributing to fragile market sentiment. Oil prices are higher, in part because of short-term supply disruptions.

    In Canada, the economy’s structural adjustment to the oil price shock continues, but is proving to be uneven. Growth in the first quarter of 2016 appears to be in line with the Bank’s April projection, although business investment and intentions remain disappointing. The second quarter will be much weaker than predicted because of the devastating Alberta wildfires. The Bank’s preliminary assessment is that fire-related destruction and the associated halt to oil production will cut about 1 1/4 percentage points off real GDP growth in the second quarter. The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins. While the Canadian dollar has been fluctuating in response to shifting expectations of US monetary policy and higher oil prices, it is now close to the level assumed in April.

    Inflation is roughly in line with the Bank’s expectations. Total CPI inflation has risen recently, largely due to movements in gasoline prices, but remains slightly below the 2 per cent target. Measures of core inflation remain close to 2 per cent, reflecting the offsetting influences of past exchange rate depreciation and excess capacity.

    Canada’s housing market continues to display strong regional divergences, reinforced by the complex adjustment underway in the economy. In this context, household vulnerabilities have moved higher. Meanwhile, the risks to the Bank’s inflation projection remain roughly balanced. Therefore, the Bank’s Governing Council judges that the current stance of monetary policy is still appropriate, and the target for the overnight rate remains at 1/2 per cent.

    It is still anticipated that rates won’t start increasing until well into 2016 and even 2017.  Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

    Fixed rates have only fluctuated a little since the last announcement, and are around 2.69% to 2.89% for a five year fixed term.

    So is it time to maintain your variable mortgage or lock into a fixed? That’s always the question, however with potentially higher fixed rates and higher penalties to break that mortgage, in our opinion you should maintain the present course. If you feel that you want to lock into a fixed mortgage, than call me so I can calculate what your new payment would look like and whether this new payment fits into your overall financial plan.

    Look for our next Rate update on July 13, 2016.

    On a final note, I wonder if I can ask a favour? If you know of a friend or family member going through a financially tough time – maybe I can help with some budgeting, credit counselling and debt consolidation options for them.   Or if you know of someone looking to buy and/or sell in this busy spring market, please let them know there are better options than the bank! As Mortgage broker and agents, we will ensure that our clients whether self-employed or employed will get a mortgage that works for them not the lender!