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Bank of Canada rateBank of Canada Announcement and Banks Announcing Mortgage Rate Drops is merely coincidence

Mortgage Rate Drops, independent of the bank of canada announcement, are expected in the near future due to spring market price wars.

You have most certainly by now heard that about the Bank of Canada’s Announcement a couple of Wednesdays ago regarding their overnight lending rate drop. Their target rate was lowered by one quarter of a percentage point (previously at 1% to 0.75%) What this translates to is the Bank of Canada is the Bank to all of the Banks. It lends the banks money to fulfill their overnight reserve requirements to be compliant within the guidelines of the government mandated banking system. So essentially, the rate that the banks borrow at has dropped by 0.25%.

This move is a very proactive move on the part of the Bank of Canada. The Bank of Canada Announcement was justified as a stimulation of our slowing economy. Not only in the Oil and Gas sector but in other facets of our economy across the country.

Why?

So why exactly did the Bank of Canada elect to lower their rates, despite all of the recent talks of rising rates – pretty much right up until the Bank of Canada Announcement?

For starters, contrary to the current headlines of this Bank of Canada Announcement having everything to do with the housing market and mortgage rates…..this is NOT TRUE. Rather it most likely had to do with the following:

  • To stimulate capital spending in businesses. A stimulation in capital spending in businesses would generate obs as well as tax revenues. This type of stimulation is predicated on the Banks lowering their prime lending rate along with the Bank of Canada Announcement
  • To deflate the dollar and therefore make our Canadian products more attractive to the rest of the world. Our products such as energy, manufactured goods, forestry, and agriculture.
  • To help level off some of the dropping export prices for oil and also protecting more Canadian jobs as well as provincial and federal tax revenues

What about the Housing Market?

Plain and simple, a drop of ¼ percentage point should never be the deciding factor between buying a home or not. What was interesting though is that the banks did not transfer the entire savings of the 0.25% over to the consumer in the form of lowering the prime rate from 3.00% to 2.75%. Instead, prime has been dropped to 2.85%

There is a lot of talk that if anything, this rate drop will tremendously help the homeowners and home buyers who have followed the variable rate mortgage strategy. I have already seen more interest in the variable product in the last 2 weeks. Being tied to prime has worked out well for the most part since 2007. In fact, we at themortgagespecialist.com have been a very big proponent of the variable rate. HOWEVER, back in 2007, and even all the way back up until 2011, the difference between the 5 year fixed rate, and the 5 year variable rate, was up and around 1%. If you took the variable rate, you would benefit from at least around 1% in savings, to take that risk. RIGHT NOW, even with prime at 2.85%, your savings is about 0.4-0.6%. IT is a risk taking a floating rate, and you should never forget that.

Inevitable Mortgage Rate Drops

In the early part of the new year (2015) and even towards the end of 2014 for that matter, there was a lot of talk of a rate hike. Behind the scenes, interest rates were quietly trending in the opposite direction. Don’t always listen to what they are saying in the news. Turn to a professional that you can trust.

(with that said, I’ve even noticed a lot of professionals (realtors) who have been posting and sharing these articles, but i digress…..)

It has become almost like clock work in recent years that as spring time approaches, we see some Mortgage Rate wars, during this perceived busy home buying season. This year should be no exception.

This regular and predictable recent trend provides such great opportunities for re-finance, renewal and new mortgage funding. This year it may prove to be extra special as you can throw the extra incentive of the Bank of Canada’s Announcement of a rate drop, and still further cuts expected.

The time to get prepared is now, analyze your current mortgages to see if making an early renewal makes financial sense for you.

Collect all of your required documentation in one binder so you are ready to jump when the opportunity presents itself. You never know how much money you will save by being strategic, instead of reactive.

As always, if you you have any questions or concerns, feel free to give us a call at 778 233 2377 or email us at [email protected]

 

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Here is a Quick Summary of the April stats for Real Estate In Greater Vancouver.

 

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Two main Reasons Rates Will Not Hit 5%
 

High borrowing rates are a relic. Canadian regulators may soon force borrowers to qualify at interest rates two percentage points above the contract rate. With many posted mortgage rates now approaching and even surpassing 3.00% (depending on the term), this means borrowers will soon need to show they can afford payments based on rates…

 

Value of Mortgage Brokers Greater Than Ever
 

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In the midst of the financial crisis, America’s equivalent of our central bank – the Federal Reserve- opted to lower its short-term overnight interest rates down to zero.Things did not stop there. The goal all along was to lower longer term interest rates, which are market driven and not directly influenced by the central bank…

 

BC Home Partnership Program
 

By now I’m sure that you have heard about the announcement by the provincial government yesterday surrounding down payment. This is some good news, although with some challenges that need to be addressed, and once the dust settles, will likely have a very small impact- but still good news nonetheless…

Did Buyers In August Overpay Just To Get a Low Rate?
 

I came across this article published in the Globe and Mail which I thought did a great job of explaining the phenomenon of people rushing out to buy a house to take advantage of lower rates. It just so happens that many people did this in August. Rates – when compared to historical levels…

 

Thank You for Paying it Forward
 

This year, I tried something a little different over the holidays. To each and every one of my clients, I sent out a $5 bill asking them to use this money towards doing something nice for someone….anyone, that they cross paths with – and encouraging them to “Pay it Forward.”

Mortgage Rule Changes – How they Impact the Consumer
 

All these changes impacted mostly those that have less than 20% down payment and therefore require default insurance (CMHC, Genworth or Canada Guaranty). Unfortunately, there are more changes to come. In fact, many of the lenders are already implementing these changes as I write this blog although these changes are mean to come into effect…

 

If you would like more information or a free consultation contact Aleem below, and as a Certified Mortgage Specialist let me help you get the home of your dreams. Great Mortgages, Made Simple
Aleem Peermohamed - Mortgage Broker BC


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