Credit Score – The Rules Have Changed
September 25, 2018
No Rate Grinch This Christmas
December 5, 2018
As expected the Bank of Canada (BOC) increased the prime lending rate today by 25bps. That means prime is now 3.95% or slightly higher, depending on the financial institution your mortgage is with.
With the NAFTA agreement rewritten and turned into the US-Mexico-Canada Agreement, the BOC Governor felt that enough economic uncertainty has been taken out of the picture, which should prompt businesses to move money off the sidelines.
Today’s media release read like a mix of Harry Potter and Goldilocks and The Three Bears, which we’ll get into in our post below.
Key Points From The Bank of Canada Announcement
- Prime rate increased by 0.25%
- New trade agreement takes away market uncertainty
- US – China trade war impeding global growth
- Housing levels normalizing
- Consumer spending is slowing
How Your Mortgage Is Impacted
- Fixed-rate mortgages have slightly lowered now that uncertainty has cleared
- Variable rate mortgages continue to offer more value than fixed rate mortgages
- Rate holds available for purchases just past Valentines Day!
What does this mean for your mortgage?
The key takeaway from BOC meeting is the economy is heading toward that sweet spot where everything is just right (Goldilocks) but certain dark economic force are still lurking in the shadows that nobody will mention by name (Harry Potter). With the 1 year bond yield and the 30 year bond yields being so close together, the market is clearly saying that the economy is not growing at a rate that supports many more interest rate increases. As mentioned before the BOC is more focused on stocking up on “rate cut ammunition” vs slowing down the economy.
The Bottom Line:
So with the above in mind what are we advising our clients?
Here are a couple of main ideas that we are focusing on this fall:
- Rate Holds:
- If you think you have a mortgage need in the next 6 – 10 months – we need to talk. Since we have access to multiple lenders there are certain strategies we can put in place to ensure you have the best rate possible.
- Reducing Interest Costs:
- If you have a line of credit balance that has been or will continue to remain outstanding we are advising clients to consider rolling it into a variable rate mortgage. The interest savings by doing this manoeuvre can be up to $1,500 per year PER $100,000.
- Mortgage Exit Strategies:
- For our clients that are within 5 – 10 years of retirement we are setting up strategies that help pay off their mortgage faster without impacting their monthly cash flow.
- We are also putting in place liquidity strategies that maximize our clients’ current peak earning years so that they can enjoy a more tax efficient income during their retirement.
If the recent rate increase has you stressed out, please give me a call…and I sincerely mean that!! Lean on my 20 years of being in the world of mortgage finance AND real estate to help guide you back to your happy place 😉
If the recent rate increase has you debating whether you should be looking at fixed vs. variable mortgage, click on this link to go to our blog post which will help you understand which product fits you best.
Have a wonderful fall!
The next Bank of Canada meeting is December 5th, 2018.
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