Is the Bank of Canada hinting that we should all have Variable Rate Mortgages? Did you read our last newsletter?.
The Bank of Canada speaks a little differently than we do, so let me translate.
First, they said it by dropping one line that was in all of their reports over the past few years:
“Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected…”
They replaced it with this line:
“the substantial monetary policy stimulus currently in place remains appropriate”
Then they said they were worried that prices don’t seem to be moving up as they expected despite of all the new money that was printed. Here is how they said that:
“the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance.”
The Bank of Canada doesn’t think they will have to act to slow growth until at least the end of 2015, which means no movement in the Prime Rate for at least 2 years.
This isn’t only happening in Canada. The trend to more dovish policy (meaning a bias towards keeping rates low or dropping them) is spreading around the world right now. Have a look at this article from Bloomberg.
Yesterday’s report should really not come as a surprise to any of our Clients who read our last newsletter, or have been in our offices in the past month or so. The Prime Rate is pretty much guaranteed not to go up for at least 2 years. So, what type of mortgage should you take? It is really hard to make a case for a bloated 5 year Fixed Rate Mortgage. Especially when you can take a Variable Rate Mortgage from a NON BANK LENDER who will guarantee to lock you into a low market priced fixed rate when we fear rates might spike up. If you forgot how Banks price their fixed rate mortgages when you are already their client with a Variable Rate click here.
This is great news for anyone with a mortgage. Fixed rates are high, which means penalties to break mortgages are low, and variable rates are cheap, which means you can save a bundle. Your Mortgage Lender is scared that you will leave them, use this to your advantage, get someone negotiating for you. Get your existing Lender to start competing for your business, or move your mortgage while your penalty is still cheap. The average client can save about $7,250.00 by switching from their 5 year Fixed Rate Mortgage over to a Variable Rate Mortgage right now.
Proof, that sound, unbiased mortgage advice makes all the difference!