Prime Increases, but is that Goldilocks at the door?
October 24, 2018
Rate Update: All things in Moderation
January 9, 2019
The Bank of Canada (BOC) kept rates on hold today given the impact that falling oil prices, slowing global growth and stabilizing housing markets are having on the economy … not to mention an overwhelming desire to stay on Santa’s “Nice” list.
Though the BOC continues to beat the drum of “rates must return to neutral” with the economy continually hovering at the 2 percent inflation target rate, one has to wonder are we really that far from the “new neutral”? The last paragraph in today’s news release really summed up the BOC thoughts which we’ll expand on further in the post.
Key Points From The Bank of Canada Announcement
- Prime rate remains unchanged at 3.95%
- Global growth slowing due to trade disputes
- US still growing – albeit at a slower pace
- Consumer credit concerns abating
- Inflation in line with the BOC target
How Your Mortgage Is Impacted
- Fixed-rate mortgages have slightly increased now that the big 6 banks have crossed their respective year-ends
- Variable rate mortgages continue to offer more value than fixed rate mortgages
- Rate holds available up to just past April Fool’s Day!
What does this mean for your mortgage?
With the federal government making it much tougher to get a mortgage ( thanks to the Stress Test ) and the provincial government taxing all things real estate related ( thanks to the new Speculation Tax ) the concern around consumer spending has been taken right off the BOC Governor’s plate. Added to the one-two punch from the two levels of government mentioned above is the concern from homeowners that the real estate market is slowing, and their mortgage is about to get more expensive when it comes up for maturity. With all these factors at play, it’s easy to see that consumers aren’t going to be opening up their wallets as easily as they did 18 months ago. With that in mind, the need for multiple increases in the prime rate should be minimal in 2019.
The Bottom Line:
So with the above in mind what are we advising our clients?
- Fixed Vs. Variable – The Debate Continues:
- Remember back in 2015 when the BOC dropped rates a total of 50bps but the big 6 banks only dropped 30bps? They are still holding onto that rate spread – so expect some competitive pricing to come into play in the coming months.
- No Stress (Test) Renewal:
- If your mortgage was previously insured, and you purchased before November 30, 2016 you can transfer your mortgage to another institution and WITHOUT going through the stress test!
- Better yet! You get access to the most competitive rates in the marketplace!
- which leads us to the next point….
- There’s pricing out there your banker doesn’t want you to know about:
- Does this sound like you:
- You purchased your home before November 30, 2016 for under $1 million
- Haven’t increased your 1st mortgage since November 30, 2016
- If the answer to both those questions is yes, and your mortgage is coming up for maturity, then we need to talk. Providing you don’t need to increase the mortgage, you have access to some of the best pricing in the marketplace.
- If you do need to take equity out at maturity there is a way to structure your mortgage so that you can access this pricing. Call it the Nishka Riley Mortgage Team loophole 😉 (Perfectly Legit BTW!!)
- Does this sound like you:
The key for 2019 will be planning. Securing an interest rate well before you need the money will be critical to making sure you have the best fit mortgage at the right price to make sure you can make your financial goals come true!
Talk to you in the New Year!
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