Tag Archive for: prime rate

Clickbait headlines

You see these headlines all the time on tabloids in the checkout line, on entertainment websites and most recently on a national newspaper talking about mortgages. The article in question has the headline of “lenders now seeing 60,70 or even up to 90 year mortgages as Canadian’s struggle with rocketing interest rates”. If you have only read the headline like a certain political leader then you are missing the whole story behind this.

The thing is that many Canadians opted for a variable or adjustable rate mortgage ( based on prime rate) when they either purchased their new home recently or renewed or refinanced their mortgage. Those on a variable rather than an adjustable rate mortgage and have their mortgage with one of major Canadian banks, then they have had their payment set for the term of the mortgage at the start.

While this was an attractive option just over two years ago when prime rate was 2.45% and most lenders were offering steep discounts on the prime rate up to -1% to 1.25%. If you did not adjust your payment when the prime rate changed (8 times last year) and a few this year, then you are most likely now only paying interest. Thus this is reason for the above headline as it would now take you much much longer to pay off your current mortgage if you did not re adjust your payment.

There are may options with variable or adjustable rate mortgages. Although the biggest which was the cost which has disappeared, you still have greater flexibility to lock into a fixed rate at any time and traditionally penalties have been less if an when you had to break your contract, but those may be gone now too with the higher interest rates.

The point is if you are on a variable rate mortgage with a lender who had not increased your payment as prime has changed, then it certainly time to contact them and increase it. This is so you are paying more than just interest .Otherwise you will be in for a big surprise once your term is up and you have received your renewal notice with a much higher payment.

Today I am thankful for the fact that I have been proactive in increasing our mortgage payments as prime has increased, that my favourite Peloton instructor got a good report on her health and the sound of the rain this morning.

I look forward to hearing from you in regard to your mortgage needs.

Patrick

p.s- You can click on this link to start the process whenever you are ready. Schedule your meeting with me here.

p.s.s- I should tell you that I am licensed in Nova Scotia Brokerage (2022-3000179) Broker (2022-3000180), Ontario(M18001555) & in British Columbia(BCFSA #504098).

p.s.s.s You can download my new mortgage app here

Predictions

After reading the Bank of Canada’s press release after it’s last rate announcement on April 13th, it is quite clear that they believe that we will be in a higher inflationary zone till almost 2024. What this means is that we have definitely not see the last of the Bank of Canada rate hikes. Our CPI numbers were released after the BOC met and blew away their prediction of a 6% rate when we hit 6.7%.

Some in my field are even saying that the BOC’s target for the prime rate will hit 5.20% before things start to settle down. Just so you don’t have to do the math that is a full 200 basis points or 2% higher that we are right now. By reaching those rates it will also take us closer to parity with the 5 year fixed rate when the discount to prime has been calculated in for clients.

That being said I am still going to stick it out with my variable rate, however clients who are in a variable rate have to decide themselves if they will sleep better at night by increasing their rate by switching from a variable to a fixed. The current spread in the difference is between 1.5 – 2% from the variable to the fixed, but without the rate volatility that the variable is going through.

I look forward to hearing from you in regard to your mortgage needs.

Patrick

p.s- You can click on this link to start the process whenever you are ready. Schedule your meeting with me here.

p.s.s- I should tell you that I am licensed in Nova Scotia Brokerage (2021-3000179) Broker (2021-3000180), Ontario(M18001555) & in British Columbia(BCFSA #504098).

p.s.s.s You can download my new mortgage app here

Rate decision

Bank of Canada leaves key rate unchanged

Malcolm Morrison, The Canadian Press

The Canadian dollar gave up early gains and moved lower after the Bank of Canada’s announced it was leaving interest rates unchanged and warned of the negative effects of a rising currency.

The loonie was 0.12 of a cent lower to 102.82 cents US after the central bank announced its decision to keep the key interest rate at one per cent.

The bank observed that the economic recovery in Canada is proceeding slightly faster than expected and that “while consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes.”

But the bank also warned that “the export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.”

The currency is riding at a three-year high.

http://www.winnipegfreepress.com/business/breakingnews/canadian-dollar-up-traders-await-bank-of-canada-rate-announcement-117145598.html

Bank of Canada maintains overnight rate target at 1 per cent

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

The global economic recovery is proceeding broadly in line with the Bank’s projection in its January Monetary Policy Report (MPR), although risks remain elevated.  U.S. activity is solidifying and remains supported by stimulative fiscal and monetary policies.  Ongoing challenges associated with sovereign and bank balance sheets will limit the pace of the European recovery and are a significant source of uncertainty to the global outlook. Robust demand from emerging-market economies is driving the underlying strength in commodity prices, which could be further reinforced temporarily by supply shocks arising from recent geopolitical events.

The recovery in Canada is proceeding slightly faster than expected, and there is more evidence of the anticipated rebalancing of demand.  While consumption growth remains strong, there are signs that household spending is moving more in line with the growth in household incomes. Business investment continues to expand rapidly as companies take advantage of stimulative financial conditions and respond to competitive imperatives.  There is early evidence of a recovery in net exports, supported by stronger U.S. activity and global demand for commodities. However, the export sector continues to face considerable challenges from the cumulative effects of the persistent strength in the Canadian dollar and Canada’s poor relative productivity performance.

While global inflationary pressures are rising, inflation in Canada has been consistent with the Bank’s expectations. Underlying pressures affecting prices remain subdued, reflecting the considerable slack in the economy.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.

Information note:

The next scheduled date for announcing the overnight rate target is 12 April 2011. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 13 April 2011.

October 2009

Here is October 2009’s monthly update on key economic data. Please contact me if you have any questions.
Cheers,
Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.


September 2009

Below are the details on some key factors in our economy. Take a look and let me know what you think. Feel free to to contact me if you have any questions.

Fixed or Variable Rate Mortgage?

“Wow”! You say to your wife as you hit the bakes on the car. “Did you see the mortage rates those guys are advertising”? Your worries are over you’re thinking. Just lock in a rate like that for the next 10 years and you’ve got it made!

 

Not so fast. That rate may not be the one for you. Typically, the lowest available rate – and the one that makes the rate sign look great from the street – will be for a variable or adjustable rate mortgage. That rate has the potential to be like a roller coaster. The posted variable or adjustable rate is the rate that you’re getting today. Unless you have an economic ouija board, you will not be able to predict what kind of ups and downs are ahead of you.

 

Let’s take a closer look. A lender will offer different rates for different types of mortgages. The rates are determined based on financial risk to the institution and to you. When a customer is willing to take on the risk, they are rewarded with a lower rate. If the lender is taking on the risk ( by that I mean that the customer is promised a particular rate for a set period of time regardless what happens in the market) then the rate is higher. The loner the term then the higher the risk for the financial institution. 

 

So how do you decide? Fixed rate mortgages, because they require a low risk tolerance are usually better suited to first time home owners or those who do not keep an eye on the financial markets. 

Ask your self these questions:  

Do you like or need to know exactly what your payment is going to be over a long period of time?

Do you want to avoid the need to constantly watch rates?

Do you prefer the piece of mind of set it and forget it?

If you answered “yes” to all or most of these questions, then a more fiscally conservative fixed rate may be best option for you.

 

A variable or adjustable rate mortgage is best suited for people who have a flexible budget and can tolerate higher risk. Ask yourself these questions:

Do you watch market conditions?

Could you handle any sudden rate increases that would increase your payments?

Would you take a lower rate if it meant the possibility of your payment changing several times over the life of your term?

If you answered “yes” to all or most of these questions then a variable or adjustable rate may be the best option for you.

 

Some lenders offer a special promotional or teaser rate for the first few months of a variable rate’s term. Ask your mortgage professional how this could be good for you in the long term. Also discuss what your rate will be based on, will it be prime, prime minus   .3, .5 or .8%. Also you should know that most lenders will offer you an option to lock in your variable rate to a fixed rate at any time for the remaining portion of your term or for a longer term. 

If the uncertainty  of going with a floating rate will cause you to have sleepless nights, then that is not the option for you. In fact many Canadians choose the security of a fixed rate mortgage. They know exactly how much they will pay over the term of their mortgage, and they can plain accordingly with not financial surprises. However if rates do drop, then you committed to the promise that you have already made. You should know this that during the past 10 years 5 year fixed rates have averaged 5.5% while variable rates have averaged 5%. As a mortgage professional I can help you make the best choice, call me so I can find out what works for you.

 

Cheers,

 

Pat