Skip to content

TagVariable rate

Bank of Canada dates for 2011

Happy New Year!  Wishing you all the best in 2011….

Here’s the Bank of Canada’s schedule for key interest rate announcements in 2011.

January 18, March 1, April 12, May 31, July 19, September 7, October 25, December 6.

The Bank meets eight times a year to set the Target Interest rate.   This rate directly affects the Bank Prime rate and Variable rate mortgages.  It also affects Fixed rate mortgage indirectly.

Historically, the Bank adjusts this rate up and down between 2 and 3 times a year.   In 2010, we had 3 rate increases of 0.25% each after a full 12 months of no changes.  And most experts were forecasting for even greater rate hikes…   This all changed when the economic recovery stumbled in many parts of the world, raising fears of a double dip recession.

Even today, there is still uncertainty about the economy in many parts of Europe and the U.S.   At home, in Canada, we seem to be doing well….not great, but okay.

This uncertainty is delaying the expected interest rate hikes that so many experts were calling for in 2010….  Best guess now is for rates to remain stable until April or even July.

Enjoy the low rates…!

Bank of Canada doesn’t raise the rate

Today was the last of eight regularly scheduled meetings by the Bank of Canada (BOC).  The BOC didn’t raise their Target rate.. no surprise here.   With uncertain economic data in the U.S., Ireland and even a little shaky news in Canada, there was no chance of a rate hike.

It’s widely believed that Governor Mark Carney will not raise the rate until March 2011 at the earliest, or maybe even May 2011… possibly later…  read more here.

One thing is for certain, the longer things remain uncertain, the longer we will be enjoying these record low rates… Variable rate mortgages can be had at 2.25% and a 5 year fixed is around 3.69%.   Borrow wisely…

What mortgage product does your bank want you to take?

Here are some interesting stats…

-A Variable rate mortgage outperforms a fixed rate mortgage in over 88% of the time… According the Milevsky study done earlier this decade and updated in 2008….

-Variable rate mortgages have been at least 1.00% lower than the 5 year fixed rate mortgage over the past 25 years….and on occasion, better by as much as 2.00%.

-Canadians move every 3 years on average…meaning they must either refinance their mortgage or pay it out.

-a Variable rate mortgage has a fixed penalty of 3 months interest.

-a 5 year fixed rate mortgage has a penalty that is at least 3 months interest but has no limit…. and in the past 18 months, we have seen penalties of 6, 10 and even 14 months worth of interest.

-yet, 66% of Canadians have a 5 year fixed rate mortgage…

Is the 5 year fixed rate mortgage really the right product for 66% of Canadians?    Can the 5 year fixed rate mortgage be the right product for everyone?  Which mortgage product do you think your bank wants you to choose?

By the way, can you guess which mortgage product is the most profitable?…. you guessed it.. the 5 year fixed rate.

Make sure your Mortgage Broker does a needs analysis before they recommend a mortgage product for you…. There is no ‘one size fits all’ when it comes to mortgages….  Ask yourself, ‘who is this mortgage best for’…. my bank or me?

Inflation rises to highest level in 2 years…but don’t panic

Latest figures show inflation jumped 2.4% in October according to Statistics Canada… compared with 1.9% in September.    The Bank of Canada aims for an inflation rate of between 1% and 3%.    Anything over 2% can trigger the Bank of Canada to take action… Usually, a hike in the Bank of Canada Rate, which affects Variable Rate Mortgages..

However, it’s no reason to panic.  A one month inflation spike probably isn’t enough for the Bank of Canada (BOC) to take drastic action.  It’s probably gonna take consecutive months of higher inflation or other events before the BOC raise rates again.  Most experts believe the Bank of Canada will not make any changes til next year.

Throw in some Global issues like Ireland’s’ debt and the Korean conflict heating up and you get uncertainty… Uncertainty means rates should stay low for some time…

Bank of Canada takes a pause with rate hikes

Bank of Canada governor, Mark Carney, held the Target Rate steady today…as expected…  Concerns about the U.S. economic recovery stalling, the Global economy and our own domestic economy were mentioned in the Press Release.

In the press release, the Bank said inflation was not a concern as it is under the 2% target.  Take all this data and it spells UNCERTAINTY.

What’s also interesting is that the Bank has adjusted it’s forecast for growth downward for the next 2 years…Great news for those in a Variable rate… Variable rates are hovering around 2.30% these days.

This makes the Variable Rate product that much more attractive…even with 5 year fixed rates in the 3.59% range.

Experts believe the rate will remain steady throughout next Spring and possibly into Fall depending on inflation and Global and domestic economic data….

Click here for the Press Release.

%d bloggers like this: