How Much Will They Drop?

The Bank of Canada just dropped The Overnight Rate to 0.50%. Now it is up to Banks to decide whether or not they will decrease the Prime Lending Rate. Although every Bank in Canada is supposed to be making their own decision on this, they always seem to agree on the amount of a rate cut that we, the consumer, should receive. Look for the Banks to reduce the Prime rate by 0.10% leading to new and improved Variable rates below the 2% mark.

Based on what we are seeing in the Bond Market, fixed rates will be dropping any minute too! Have a look at the recent graph for Bond Yields HERE. Now off of their lows from earlier this morning, they are still in a range that would warrant a reduction in fixed rates.

Who Said Housing Prices in Toronto Couldn’t Go Higher?

Reducing rates now might not have a huge impact on increasing property values, but it certainly won’t deter people who have been sitting on the sidelines.

Let’s play a game called, “What should you do if…”

If you’re in a fixed rate mortgage and have been thinking of breaking it.

• The sooner you break the mortgage the better. As you may already know, when you have a mortgage with one of the Canadian Banks, mortgage penalties go higher when rates drop, so the sooner you lock into break your mortgage and shift to a lower rate the more money you will be saving. Want to see how much you can save by switching your mortgage? Have a look at Mortgage Valet HERE.

If you’re deciding between a Variable Rate and a Fixed Rate.

• For the past 15 years I have been advocating Variable Rate mortgages. Sometimes with more conviction than others. I believe that right now is a great time to partner with a lender who will offer you a great variable rate today, along with the opportunity to lock into the same low Fixed Rates they are offering their new clients in the future (this is not your Bank!). When Fixed Rates come down in the coming weeks consumers may be tempted to lock into some never before seen low Fixed Rates. Those of you who have decided to go with a major bank for your variable rate mortgage might be surprised to discover that they will no longer offer you the same rate they are offering new clients once they have you in the clutch of one of their Variable Rate mortgages.

Hot Off the Press

Check out the Bank of Canada’s News Release HERE.

Here are a few of the major points that I thought were noteworthy. In short, the economy did not do as well as they had hoped after the last rate cut. Although they are scared of consumers borrowing too much money and driving housing prices up further, they need to react.

They are still worried that we are taking on too much debt, but they can’t do anything about it because they are far too worried about the immediate impact of not dropping rates.

“While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment”

Canada’s economy is doing worse than expected. Not only are we spending less on investments in the oil patch, but the effects of the slowdown in China are hitting our other commodities and the US aren’t buying as much of our other goods as we had expected. This likely means our dollar needs to be weaker.

“The Banks estimate of growth in Canada in 2015 has been marked down considerably from its April projection. The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker than expected exports of non-energy commodities and non-commodities. Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.”

There’s lots of growth on the horizon –This one I am always skeptical of. The note below indicates that we will return to growth in 12 months. As they always seem to indicate. While I understand that this is the goal. I doubt that growth will come this quickly.

“The Bank now projects Canada’s real GDP will grow by just over 1 percent in 2015 and about 2.5 percent in 20-16 and 2017. With this revised growth profile, the output gap is significantly larger than was expected in April, and closes somewhat later. The Bank anticipates that the economy will return to full capacity and inflation to 2 per cent on a sustained basis in the first half of 2017.”

If you or someone you know is thinking about their mortgage or their mortgage to be we are always happy to chat. For almost 20 years, our goal has been to provide Canadians with: Sound, Unbiased Mortgage Advice. Canada is going through a rather complicated economic period and it is important that any advice pertaining to your finances comes from an informed and impartial source — this will never be your Bank.