Rate Update – Who’s Driving The Bus?

The Bank of Canada (BOC) kept rates the same this morning, echoing the sentiments of the last meeting – rates are likely to stay untouched until mid 2018. The possibility of a rate decrease is still on the table, however the Governor is waiting to see what actually comes of the protectionist rhetoric from our Southerly neighbours. As he repeated consistently in today’s press conference, he needs to see the data before he can decide what course of action to take. If a rate cut does materialize, it’s uncertain the Big Banks would follow, and if they did, by how much.

So if the economy is slowing and the bond market has settled down, why are rates rising – who is driving the bus? It’s not the Bank of Canada as most would expect, but the Minister of Finance, the Hon. Bill Morneau. Recent policies brought in by the dear minster July and October of last year are now starting to have an affect on the cost for banks to fund mortgages. I’ll spare you the economics lesson, suffice it to say that mortgage rates will rise a little bit more. The good news is the Canadian Banks are now virtually bullet proof in the unlikely event of a collapse in housing prices. As they say, insurance has a cost, and its evident the Canadian consumer will be picking up the tab.

Here are some of the highlights of the meeting:

Key Points From The Bank of Canada Announcement

• Prime rate not changed
• Trump economic protectionism a concern
• Canadian labour market still has slack meaning no inflationary wage pressures
• Canadian exports continue to disappoint due to strong CDN dollar
• Inflation in October lower than expected

How Your Mortgage Is Impacted

• Prime rate remains at 2.7%
• Fixed rates continue to rise due to Trudeau Government Policy
• Tiered pricing coming into effect with some lenders
• Variable mortgage rates expected to stay the same until mid 2018 or longer
• Rate holds for purchases or maturities now available until end of May 2017

To say 2017 will be an “interesting” year is an understatement. In addition to fixed rates rising due to policy changes brought in by the federal government, CMHC announced that they will be raising their insurance premiums effective March 17th. The rising cost of mortgage insurance will yet again have an impact on the cost for banks to fund mortgages. For an explanation as to why, see our previous post Is Your Mortgage Insured.

So where do you go from here? We expect that fixed rates will continue to rise a little bit more, but overall be constrained by the weak Canadian economy. At this point we are starting to recommend variable mortgages, given that prime is expected to remain unchanged until 2018. A word of caution with variable mortgages: given their fluctuating nature, you need to make sure you are a good candidate for the product. If you are unsure if a variable mortgage is right for you, read our post Is it time to Fix Your Variable Mortgage or give us a call to discuss it.

Bottom line, if you have a mortgage that is maturing in the next 4 – 5 months, a bit of planning now could save you a lot of money.

Disclaimer notice: The views expressed in this email are of our opinion. The information has been sourced from the Bank of Canada, and several Canadian news sources. Any forecasts or expectations of the direction of interest rates are based on the collective experience of the Nishka Riley Mortgage Team, and as such any recommendations in this email must be taken within the context of your personal situation. As with any forecast, there is no way to guarantee the outcome of the real estate market or interests rates and in no way is a guarantee implied.