As you know, your variable rate mortgage, lines of credit and/or student loans are all based on the Prime Rate and as promised, here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.
At 9:00 am EST, October 25th, 2011, the Bank of Canada did what we expected them to do… they maintained their overnight rate. What this means to you is that the prime rate on your mortgage or line of credit will not change and remains at 3.00%. This is great news as you still have a great low rate and so continue to make the most of the low payments you will still have and maybe chat with a financial advisor about a Tax Free Savings Account or some RRSP contributions to trigger a potential income tax refund next year! If you don’t have a financial advisor, let me know and I’d be happy to recommend one to you.
Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision:
“The global economy has slowed markedly as several downside risks to the projection outlined in the Bank’s July Monetary Policy Report have been realized. Financial market volatility has increased and there has been a generalized retrenchment from risk-taking across global markets. The outlook for the Canadian economy has weakened since July, with the significantly less favourable external environment affecting Canada through financial, confidence and trade channels. Although Canadian growth rebounded in the third quarter with the unwinding of temporary factors, underlying economic momentum has slowed and is expected to remain modest through the middle of next year.”
The outlook has not changed since the last announcement…. the Canadian economic growth stalled in the second quarter but the Bank continues to expect that growth will resume in the later part of this year. Based on this repeated message and economic conditions it is anticipated that prime rate might not actually increase until well into 2012 maybe even 2013. When it does start to increase, it is expected to be gradual and controlled in line with economic recovery, both in Canada and globally. Remember any change to the prime rate since 1992 has only been by 0.25% at any ONE time.
We have seen the fixed term rates fluctuate slightly since the last announcement and are still very low at around 3.49% to 3.79% for a five year fixed term.
Based on this recent announcement, and the anticipation that the prime rate will still remain low for the coming months, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is very much lower than a fixed term rate right now. However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. The next announcement on any change to the prime rate is December 6th, 2011 at which time I’ll be in touch again.
I wonder if I can ask a favour – rates are so low right now and so it is a great time to buy a property or consider refinancing especially as I can hold rates for up to six months, if you know of someone that is looking for advice on their mortgage options, with no obligation, would you mind passing my contact information on to them – this is very much appreciated.