Earlier this year, we saw a few lenders raise their Variable rate pricing from Prime less 0.75% to Prime less 0.50%…. Most other lenders did not follow.. But it made us wonder if there was some concern that the Bank of Canada might hold off on any increases in the Bank Prime this year, as was widely forecast by most Experts….
Sure enough, the recent stock market collapse, the European and US debt crisis has put any potential rate hikes on the back burner with most Economists forecasting for no increases until next year…
Fast forward to today… The Financial Post reported that RBC would increase their pricing from Prime less 0.65% to Prime less 0.45%. This move would indicate that the RBC Economists think the Bank of Canada is not in any hurry to raise the Prime rate…. or they believe the BOC may even lower the rate at some point…
Mortgage Brokers still have access to better priced Variable rate products through their wholesale channels but will other Lenders raise their pricing in the coming weeks? We’ll be watching and will let you know…
Did you know that between July 22nd and August 8th, the TSX index dropped 14%? Did you know that since August 8th, it has recovered 9% of that loss? What a roller coaster ride…But there’s good news here…
So how will this affect your mortgage rates?
Fixed mortgage rates are priced from the 5 year Cda govt bonds.. Bond yields also dropped like a rock.. from 2.27% to 1.35% during that same time period… that’s a 0.92% decrease. A visit to TD Bank’s website shows us their ‘5 year fixed rate Special offer’ is 4.19%... no drop at all. Call a Mortgage broker and you’ll see rates of around 3.49% today.
Sure, fixed rates are very low but they should be lower…. Fixed rates are usually priced around 1.30% to 1. 70% above the 5 year bond yield… Why haven’t you seen mortgage rates keep pace with the bond yield drop? That’s not hard to figure out… The Banks are maximizing their profits… same old story…Banks are infamous for hiking rates quickly and but slow to move when it comes to cutting rates.
How about Variable rates?
Well, not much to report there… The Bank of Canada meets 8 times a year. Last meeting was July 19th. Next meeting is Sept 7th. You can forget about any immediate rate hike. Economists have done an about-face with their forecasts…. We were expecting a rate hike this September or October… That’s now been pushed back to 2012… and there were even some rumblings about a possible BOC rate cut (but I’m not sure that’s gonna happen).
At 3.00%, the Bank Prime rate is still very, very low and makes borrowing very attractive… Current Variable rate mortgages are priced at between Prime less 0.65% to 0.80%… We may not see interest rates drop, but there is no reason for them to go up for the next little while…. Enjoy the low rates.
This week, TD Economics said the Bank of Canada probably won’t raise rates til 2012. How quickly things can change. Just a few months ago, most Economists and Financial Experts were calling for the Bank of Canada to raise rates this summer.. some said as early as May… Well, that didn’t happen.
There are many reasons but TD’s Chief Economist, Craig Alexander, said it was low inflationary expectations, the negative impact on the European financial instability (Greece, Ireland, Spain, Portugal) and the high $Canadian dollar. We can also through in Japan’s Tsunami and the Middle East political uprising.
Fixed rates have also not gone up as the Economists were forecasting earlier this year. Instead, they have come back down to historical lows, once again… The Bond market affects fixed rates and we’ve seen the 5 year Canadian Bond drop 80 basis points since mid April.
All this is great news for borrowers as there appears to be little pressure to raise interest rates anytime soon.
Found this article interesting….
Canada is the envy of the world when it comes to our mortgage and banking regulations. This article in the Huffington Post questions why is there a 30 year fixed rate mortgage term and points to Canada’s mortgage and banking system as a better, more viable option.
In case you didn’t know, 30 year fixed rate terms are the norm in the U.S. 5 year Variable rate mortgages are the more common mortgage product around the world, including Canada. 200 U.S. Banks have failed since 2008… NONE in Canada… and in 1985, almost 3,000 U.S. banks failed but only 2 Canadian Banks closed their doors....
Go ahead Canada, feel good about yourselves…!
This morning marked the fourth of eight scheduled meetings for 2011 by the Bank of Canada. No surprises, the BOC left the rate unchanged. This keeps the Bank Prime rate at 3.00% and keeps those Variable rate mortgages well under 3.00%. Great news for borrowers.
In their press release, the BOC noted concerns about the high Canadian $dollar… increasing the BOC rate would probably mean an even higher $CAD, putting more pressure on Canada’s exports. The $CAD is currently $1.02US. Still, the BOC is concerned about inflation and keeping inflation within the Target Zone of between 1.00% and 3.00% has always been one of the biggest factors that drive BOC policies. “…inflation expectations remain well-anchored.”
The next BOC meeting is July 19… right now, it does not appear as though we will see any hikes until September or later…