Rate Update: All things in Moderation
January 9, 2019
Why Bad News Is Actually A Good Thing
April 24, 2019
The prime lending rate remained unchanged today by the Bank Of Canada (BOC). Though the BOC Governor anticipated an economic slow down in the first quarter of 2019, the notes from today’s decision suggest that the reason for the slow down can be mostly attributed to a loss of economic confidence.
A loss of economic confidence you say – call the stock broker, call the realtor … sell everything! Now hold on there… before you start panicking like its 2009, this loss of confidence is attributed to uncertainty vs instability. The subtle difference is that at this point of the economic cycle, when rates start to increase (read: normalize), it’s only natural for consumers and businesses to pull back on spending until things become clear. As for the concerns about instability; over the past five years the federal government has introduced so much financial reform and oversight for mortgage financing that the entire sector from consumer to banks is rock solid.
The key thing to focus on is that the BOC feels the economy is still growing, it’s just the pace of that growth which has slowed. All of which could be good news for your mortgage over the next 120 days.
Scroll down and read how today’s news relates to your mortgage, and what we are expecting the next 120 days to look like.
Key Points From The Bank of Canada Announcement
- Prime rate remains unchanged at 3.95%
- Global growth slowing
- US/China Trade talks making progress
- China is adopting a stimulative economic policy
- Commodity prices expected to firm up
- Oil producing provinces expected to feel the pinch
How Your Mortgage Is Impacted
- Bond Yields are dropping – fixed rates are now following.
- The Spring Mortgage Specials are out and more seem to be coming.
- Rate holds available to just past Canada Day!
What does this mean for your mortgage?
In our last update we mentioned that as the story developed around the rate of economic growth slowing, that bond yields would come down which in turn would lead to lower mortgage rates. The magic ingredient we were waiting for was the spring real estate market to arrive and the banks rushing to the market place with their special offers.
Fast forward 56 days and it would seem that our prognostication skills rival those of Wiarton Willie, because since our last update the five year fixed rate has fallen by 20 bps ( 0.20%) or more – depending on the size of the mortgage in relation to your property value. To add to that, we are now starting to see the banks bring out their “Quick Close” specials for purchases closing in 30 to 45 days.
The Bottom Line:
So with the above in mind what are we advising our clients?
With all the rules changes the government has brought in over the past five years, the days of one size fits all mortgage advice are long gone. Having said that here are three factors we look at when analyzing clients financing needs and determining the appropriate solution:
- Is the mortgage you need less than 65% of the value of your property?
- This is the new sweet spot for mortgage pricing and is amazing news for people who’s mortgage is coming up for maturity.
- What are your future equity needs?
- Though there are some great rates out there, a lot of them come with limited ability to refinance down the road.
- This is something to be leery of if you want to upgrade, renovate, start a family or retire in the next 3 – 5 years.
- Though there are some great rates out there, a lot of them come with limited ability to refinance down the road.
- What is your financial comfort zone?
- This is the key question we ask when trying to figure out if a fixed or variable product is right for you. It’s easy to get seduced by low rate variable mortgages, but if you can’t sleep at night when the rates go up … is it really worth it?
With the BOC now clearly stating that rates will remain on hold until the end of 2019, the next 120 days should represent an opportunity to secure a great rate. As I said in the beginning of this post, we are still in a growing economic environment, so the trend for rates should be heading up – the million dollar question is when and at what pace.
If you think you have a need for mortgage money before Canada day or even later in the year, it’s best we talk now.
Enjoy spring and all the beauty it has to offer. As they say … be sure to make time and stop to smell the flowers!
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