[Rate Update] Beware of the “Flea Market Effect”
May 30, 2018
No Increase With NAFTA On The Ropes
September 5, 2018
The Bank of Canada (BOC) increased the prime rate by 25bps today which means prime will now be 3.7% with most lenders by the end of today.
Though we are in the middle of a trade war with The Donald, the BOC felt there was enough good news that came in over the last quarter to warrant a rate hike.
In this post, we’ll cover what is keeping the BOC up at night and what options you should consider for your mortgage in a rising rate environment.
Key Points From The Bank of Canada Announcement
- Prime rate increased by 0.25%
- Low unemployment and wage growth still a concern
- Global economic growth looking strong
- Consumer spending slowing
How Your Mortgage Is Impacted
- Fixed-rate mortgages have slightly lowered
- Variable rate mortgages continue to offer value than fixed rate mortgages
- Rate holds available for purchases until the beginning of November
What does this mean for your mortgage?
To answer that question you need to peer into the mind of the governor of the BOC and figure out what’s keeping Stephen up at night. Here are some key points:
- Make sure that the economic growth is not running away
- This is important since the prime rate is still at a stimulative level.
- The US economy is growing at a much faster rate than anticipated
- Though we are in the middle of a trade war, the majority of our trade with the US is energy.
- This could have stimulative effects on our economy
- Businesses spending is ramping up
- Despite the trade war, businesses are continuing to invest in infrastructure
- This is good news since consumer spending is starting to slow
- Wages are increasing
- Tighter labour markets = higher wages = more money chasing fewer goods = inflation concern
With the above four items heating up, the BOC has hinted that they might not be done raising rates in 2018. Time will tell as the economic events unfold.
The bottom line:
So with the above in mind what are we advising our clients?
As always, each and every time we have a conversation we go back to our three stage process:
- Life goals:
- We always cover life goals first. It’s only once we understand what your priorities are both personal and financial that we can develop a mortgage strategy that will work for you today as well as tomorrow.
- Mortgage Product:
- Now that we have a clear picture of what is happening/could be happening in your life we can select a mortgage product that will work for you now AND later on if you need to make changes.
- Interest Rate:
- How could this be last?! Nishka, isn’t the interest rate the most important thing? Yes, but there has to be a balance between the rate and the mortgage product. Imagine if the only way you could access the equity in your home was to sell it? If you’ve owned your place for more than three years you know how much of your own money you would be locked out of! This is just one of the hidden clauses in some of the low rate products on the market. The balance lies in trying to get the right mortgage product with the features you will use so that you enjoy the best of both worlds.
To come full circle and answer the question above, each person’s situation is unique.
If you are worried about the recent rate increase, give me a call. We can schedule a mortgage review and figure out what are the best options. If you are debating fixed vs. variable mortgage, click on this link to go to our blog post which will help you understand which product best fits you.
Have a wonderful summer!
The next Bank of Canada meeting is September 5th, 2018.
Did you Like my post? Don’t forget to Like my Page to keep current on news in the real estate market!
[thrive_lead_lock id=’1114′]Hidden Content[/thrive_lead_lock]
