Firstly, a very Happy New Year to you and your family – if one of your New Year’s Resolutions was to get back on track with your financial goals, now is a perfect time. This is the first of many announcements this year about potential interest rate changes that could impact a majority of your current and future borrowing plans. My New Year’s resolution is to help ensure that the impact of interest rate changes to you is minimal. I can provide you with strategies to ensure more of your hard-earned cash stays in YOUR pockets and doesn’t line someone else’s!
As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement. As predicted, the Bank of Canada has increased their Overnight Rate by 0.25%. When this happens, it typically means that your Prime Rate is going to increase as well, but not always by the same amount. It can also mean that not every lender will adjust their prime rate the same way. Keep an eye out later today for further updates on your specific lenders’ prime rate.
Recent economic data has been stronger than expected hence a surprise to see the Bank increase their rate again so quickly; we haven’t seen that in over 10 years! You have to admit that we have had it good for a long time and we can still continue to benefit from low rates and don’t panic!
Last year we saw two rate increases, each of 0.25%, and it is predicted to be a few rate increases again this year as the Bank attempts to get interest rates back to their traditional average. You might be concerned about your cash flow and budgeting at this point and might be considering moving over to a fixed term mortgage. Fixed term interest rates have increased slightly with a range of 3.19% to 3.49% for a five-year fixed term. Don’t forget that if you want to lock in you can take a shorter term that will typically have a lower rate attached to it. If the net interest rate on your current variable is the same as or higher than the current fixed term rates right now, even though the prime rate will still remain low for a while now, it might be time to chat about your options including potentially converting to a fixed term. Converting to a fixed term isn’t right for everyone as other factors are to be taken into consideration such as payment change, income and future plans such as renovating, moving etc. Call me so I can calculate what your new payment would look like and also if it is suitable for you.
Have you really made the most of the low payments you have had? How much do you have saved up or how closer are you to your mortgage burning party because you have made extra payments on your mortgage? Or maybe you just got a little carried away and have some high interest credit card debt that you can’t seem to pay off in full each month.
Don’t worry, if you aren’t as far ahead as you would like to be, we can work together to create a plan to get you back on track, the new year is a great time to work on setting goals and developing a strategy!
To continue with the Bank of Canada news, here is an excerpt of the announcement and what they had to say about the current market conditions:
“Consumption and residential investment have been stronger than anticipated, reflecting strong employment growth. Business investment has been increasing at a solid pace, and investment intentions remain positive. Exports have been weaker than expected although, apart from cross-border shifts in automotive production, there have been positive signs in most other categories.
Looking forward, consumption and residential investment are expected to contribute less to growth, given higher interest rates and new mortgage guidelines, while business investment and exports are expected to contribute more. The Bank’s outlook takes into account a small benefit to Canada’s economy from stronger US demand arising from recent tax changes. However, as uncertainty about the future of NAFTA is weighing increasingly on the outlook, the Bank has incorporated into its projection additional negative judgement on business investment and trade.
The Bank continues to monitor the extent to which strong demand is boosting potential, creating room for more non-inflationary expansion. In this respect, capital investment, firm creation, labour force participation, and hours worked are all showing promising signs. Recent data show that labour market slack is being absorbed more quickly than anticipated. Wages have picked up but are rising by less than would be typical in the absence of labour market slack.”
As you see they are still concerned about the over inflated housing market we experienced in recent years as well as consumer debt. However, with NAFTA trade talks still underway, they are concerned about the potential impact on business and investment in the Canadian economy.
I wonder if I can ask a favour; Going with my theme of “New Year Financial Goals” if you hear a friend or family member talk about going through a financially tough time – maybe I can help with some budgeting, credit counselling and debt consolidation options for them. In either of these cases, would you mind passing my contact information on to them – this is very much appreciated.
I’ll be in touch again for the next announcement on March 7th, 2018.
AMP – Accredited Mortgage Professional