Bad news is good news for borrowers… problems some European economies and other parts of the world could stall the much talked about and anticipated rates hikes..
Bank of Canada Governor, Mark Carney, said the timing of future interest rate hikes is not ‘pre-ordained’.
This just goes to show that even the best Economists don’t have a magic crystal ball…. Fixed rates are still very low, and Variable rates are even lower… 5 year fixed rates are hovering at around 4.39% and Variable rates are at around 1.90%…
This all adds up to good news for borrowers… Enjoy the low rates!
As expected, the Bank of Canada raised it’s Target lending rate to 0.50% from 0.25%. This prompted most Banks to raise their Bank Prime lending rate to 2.50% from 2.25%. But there is some uncertainty about when the next increase will take place as reported in The Star.…. and oh yes, the increases will happen.. not ‘if’, but ‘when’.
Economists have said repeatedly that the Bank of Canada must raise their rate to slow the economy and keep inflation in check… The Target inflation rate is 2.00%. Most Economists agree that they only need to raise this by 2.00% to 3.00% to have the desired effect. (See a full report)
It seems like a rate hike is almost certain for tomorrow’s Bank of Canada meeting.. but we need to put this in perspective… The Bank of Canada has not raised rates since July 2007… and Mr. Carney has never raised the Target rate since he took his place as Governor…. (he should be a popular person among Canadian borrowers).
But let’s put it in perspective…even if the Variable rate doubles to 4.50% from it’s current 2.25%, we would still be in historically low interest rate territory when it comes to variable mortgage rates…
A 25bps or 50bps or even a 100bps increase should only slow the housing market and not kill it….. Remember, these are EMERGENCY RATES…. The Emergency is over.. and we should want it be over… We should be happy that we’ve been able to enjoy these record low rates for so long….. the sky isn’t falling… we won’t be seeing rates of 9% or 10% or anything near that level…
Just can’t leave this one alone…
The Globe and Mail ran a great article about the recent mortgage rate hikes by the Big Banks…..Seems like more of us are questioning the latest round of fixed rate increases….
The article gave some great stats that I wanted to share… First, we should point out that Fixed rates are affected by the Bond Market for the most part but Banks also raise money through GICs… Variable rates are affected by the Bank of Canada Key Lending Rate…. with that in mind…. here are the stats from the article….
10 YEAR AVERAGE…
- 5 yr Bond 4.05%
- Big Bank 5 yr posted fixed rate 6.75%
- Big Bank 5 yr GIC 3.31%
THIS WEEK’S NUMBERS…
- 5 yr Bond 3.02%
- Big Bank 5 yr posted fixed rate 6.25%
- Big Bank 5 yr GIC 2% to 2.1%
Has to make you wonder…?
Yes, it’s true….yesterday, RBC lead the way with another interest rate hike on their 5 year fixed mortgage… followed by TD and Laurentian Bank…. It was a 0.15% increase for a new 5 year Bank Posted rate of 6.25%. This marks the 3rd increase in a month.
This latest rate increase is leaving many puzzled as the Bond Market has remained somewhat flat… the 5 yr Bond yield is currently 3.07%. A fully discounted 5 year fixed rate at TD can be had for around 4.79%.. that’s giving a huge spread of 1.72%… well above the 1.20% to 1.30% that Banks normally seek….
Okay, so why would the Banks increase the fixed rates? Sometimes Banks price themselves out of the market when they achieve their market share… and sometimes it’s just profit taking…. But don’t settle for these rates if you are looking for a Fixed rate.. the Broker Market is still offering much lower rates and the Variable rate mortgage can be had for around 1.70%….