Mortgage Insurance Premiums on the Rise
January 21, 2017
Interest Rate Update – Fixed or Variable in 2017 ?
April 12, 2017
The Bank of Canada (BOC) kept rates the same this morning, however, there was mention of signs of growth in the Canadian economy in the last quarter of 2016. This doesn’t necessarily mean that we are heading for a rate increase in 2017, but it does take the potential for a rate decrease off the table – for now.
The update, given in classic economist double speak, mentioned elements that suggest the economy is growing followed by elements that suggest the economy could be shrinking – with of course the now obligatory finger pointing at President Trump. Exports and wage growth are the key items to keep an eye on that could impact the bond markets. Currently, both are on the economic ropes, however, if exports start to increase (i.e., NAFTA left untouched by Trump) or a decrease in the unemployment rate, that could prompt the BOC to signal that a rate increase is now a possibility. Once that signal is given the bond market will take its cue and sell off, which will lead to higher mortgage rates. Click here to read a Financial Post article that explains how that could be a possibility in the later half of 2017.
Key Points From The Bank of Canada Announcement
- Prime rate not changed
- Trump’s plan for NAFTA an economic wild card
- Canadian labour market still has slack meaning no inflationary wage pressures
- Canadian exports continue to disappoint due to strong CDN dollar
- Inflation slightly increasing
How Your Mortgage Is Impacted
- Prime rate remains at 2.7%
- Fixed rates have levelled out
- Variable mortgage rates expected to stay the same until mid 2018 or longer
- Rate holds for purchases or maturities now available until end of June 2017
So what do the next few months look like for fixed interest rates? The answer is it’s complicated! Traditionally, spring has brought lower interest rates as lenders try to compete for the busy buyers market. However with all the recently introduced government regulations its tough for lenders to get a handle on how much it’s going to cost them fund their mortgages. In my experience what will most likely happen is all the lenders will hold rank – keeping interest rates relatively steady. Then at some point (around late April), one lender will come out with a rate special, and the floodgates will open with a race to the bottom. Am I expecting a return to last summer’s low interest rates? No, but we could see a 0.1% decrease.
The caveat to that prediction is that rates could decrease slightly, provided the economy continues to show no signs of inflation. As I said to one of my clients this week “Economic bad news is good news for your mortgage”.
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.
The next Bank of Canada meeting is April 12th, 2017
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