The Canadian economy is slipping. In fact, we may see our first quarterly economic contraction since the second quarter of 2011. But before you stock up on canned beans, this isn’t all bad. It could mean that lower variable rates are on the horizon. It won’t happen immediately, but we doubt this is the lowest our variable rate mortgages will go (as long our Banks share the coming overnight rate discount with us.)
On March 4th, the Bank of Canada decided to keep the Overnight Rate unchanged at 0.75%. We haven’t heard anything since then, but the next meeting is fast approaching on April 15th. We expect the Bank of Canada to keep the overnight rate as is, which will keep your Variable Rate Mortgage the same. So, not much is happening…yet.
Just today, the Governor of the Bank of Canada, Stephen Poloz, was in London speaking to the Canada-United Kingdom Chamber of Commerce. In his speech, he made some comments that might affect your mortgage. Our Top Banker was taking a bit of heat from surprising the markets with an unexpected rate cut in January. However, he defended his move and explained that he needed to do something drastic based on the drop in oil prices and the anticipated impact on the Canadian economy. Poloz believes that the rate drop has bought the bank time to assess the evolving economic impact of the drop in oil. More importantly, he definitely did not rule out a future drop in the overnight rate. Although, based on his comments we don’t think it will come in April.
What does this mean for you?
- Most people should get into a variable rate from a Non-Bank Lender.
- Work with a Lender that will commit to offering a great fixed rate mortgage should you decide to switch from Variable to Fixed during your mortgage term. (Since you will have a penalty to break your mortgage and move elsewhere, banks will typically offer existing mortgage clients much higher fixed rates than new customers. This is not that case with Non-Bank Lenders.)
- Don’t get fooled by your Bank. They are not on your side, be mindful of the penalties and restrictions that come along with their mortgages. CBC did a great report on the perils of TD Banks mortgages which you can view here.
- Speak to a Broker you trust, we would love it to be us, but as long as you are dealing with a good mortgage broker we believe your interests will be well served.
The keys to a good mortgage are flexibility and rate. Always, always, always ask what restrictions a new mortgage may have. You deserve a great rate on your mortgage without a hefty penalty.