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TagBank of Canada

Rates hikes may be stalled

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!

Bank of Canada raises rates by 0.25%

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)

Expecting a June 1st rate hike

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…

Why did these lenders stop dealing with Mortgage Brokers?

Great article today in The Globe and Mail… Ok, so why am I promoting an article that talks about NOT dealing with Brokers?   The article says, RBC, BMO and now HSBC are not dealing with Mortgage Brokers (RBC never dealt directly but they do put money out through RBC Securities…BMO stopped a few years ago and HSBC just stopped).

The article quoted Marcia Moffat, VP Home Equity Financing, RBC.  I have my opinion but what do you think about what she said?…. “The mortgage market is extremely competitive, so the reality is that there is little to no difference between bank rates and broker rates.”

Well, that statement sparked a flurry of comments… read the comments section of the article.. including some words from CanadaMortgageNews.ca.  As recent as a few weeks ago, I had client asked if I could give them a letter stating what my rate was so they could take it to their RBC branch and the branch could match my rate… and  this happens all the time…

The Banks are a business and want to make a profit…. you heard me say this before?  I must repeat it again…far too many don’t believe it…  The Banks want you to take the 5 year fixed rate mortgage… it’s the most profitable product for them…

Remember, a few months ago, I wrote about the government introducing new mortgage rules that make it harder to qualify for variable rate and shorter term mortgages (1 to 4 years)….  you must now qualify using the Bank Posted 5 year fixed rate…  that’s 6.10% today!!   Or you can qualify at the contract rate (fully discounted rate) of the 5 year fixed rate mortgage product….. today, that’s around 4.49%… . Which product do you think borrowers will need to take if they are on a tight budget? yes, the 5 year fixed rate mortgage.

So, why do these lenders not want to deal with Mortgage Brokers? For me the answer is very clear…they want to put you into their most profitable product…. Mortgage Brokers have a duty to recommend and advise the MOST APPROPRIATE PRODUCT.

I’ll be speaking more about Bank mortgage products soon… in particular, the split mortgage products… please don’t get into these products without knowing all the details and reading the fine print….speak with a qualified Mortgage Broker.

Lower inflation figures mean less pressure to raise rates…

Latest figures show inflation is not a problem…. The latest 12 month figures show inflation running at about 1.7% which is within  the Bank of Canada’s 2% target rate….

Inflation is one of the biggest factors that affects the Bank of Canada’s key rate (the rate that affects Bank’s Prime rate)…..this is good news for Canadian borrowers as there has been a large amount of media coverage regarding the much-anticipated interest rates hikes…

Oh, and by the way… the Bank Prime rate still 2.25% (an all time low)…  Why not just enjoy the low rates and not worry about what might happen in a few years?