As widely expected, the Bank of Canada (BOC) left rates unchanged today. Some key points in Governor’s comments were:
- We are seeing the quantified effect on the economy from the Alberta wildfires
- The US economy is slowing with respect to business and real estate investment
- However US employment and consumer spending are holding strong
- As a result of the above two factors, exports are down significantly
The Governor is expecting a substantial rebound in the final part of the year, however that would merely put the economy back on track. The next BOC update in October will bring a more detailed analysis of the economic situation, but the consensus among economists is that a rate increase is not even on the horizon.
Key Points From The Bank of Canada Announcement
- Prime rate not changed
- US economy mixed
- Canadian economic growth down
- Canada expected to rebound by the end of the year
How Your Mortgage Is Impacted
- Prime rate remains at 2.7%
- Variable rate mortgage discounts getting better
- Fixed rates at an all time low due to “The Fed” not raising rates
- Rate holds for purchases or maturities now available until January 2017 !!
Where are rates heading?
At this time, given the current economic situation, there really isn’t any pressure on rates. The only wild card is the Federal Reserve. Speculation is that any rate hikes have been put on hold until after the US election in November. When the US does adjust their prime rate, that could change the funding costs of fixed rate mortgages here in Canada. For variable rate mortgages, the story is a little different. As the chance of a prime rate increase grows, the banks will have more room to increase their discounts; which is important for clients who are coming up for renewal in the future. Though we are not currently recommending variable rate mortgages, as we’ve said in previous updates, if you are currently in a product with a discount below prime of 0.5% or greater you are in the perfect spot. For now, we are continuing to recommend fixed rate mortgages until we see improved discounts that offer a better risk reward balance.
Wondering how to structure your mortgage for 2016 or utilize the equity in your home?
Give me a call! We can discuss how your current financial situation fits into today’s economic environment, how the right mortgage strategy could save you thousands of dollars over the term of your mortgage and how to maximize the value of your home in today’s market.
The next Bank of Canada meeting is October 19th, 2016.
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