Just last week we provided you information presenting reasons why the Bank of Canada should maintian the status quo when it comes to the overnight rate. Howvever, our advise fell on deaf ears (no kidding!) as the Carney clan had other ideas and for the second time in as many meetings the overnight rate was increased.
Obviously, the Bank of Canada feels pretty good about the economic state of the country and is concerned as always, with keeing inflation in check. Carney has acknowledged that global markets will be key indicators for future rate decisions and this is a good thing. So much of Canada's ecoonomic activity is natural resource and trade based that a micro approach misses a lot of the picture.
Clearly, we missed this one as we are in the same boat with the economists that have come out against the latest move. They, like us, think "it is too much too soon as we are not out of this yet." Furthermore, The Bank of Canda is notorious for yo-yo rate movements, so this could be a case of overshooting that needs to be corrected in the future.
Regardless, there is still no need to panic as even with the rate increase variable clients are looking at 2.15% mortgages coupled with near record low lock-in options. This said rate news is always a good reminder to set up a mortgage review with Mortgage Connection and we encourage you to take advantage of this service.
We continue to beat the same drum, but the question on where rates are going is still the most asked question we receive from clients on a daily basis. The answer is up. The better question is when or more importantly, by how much?
As expected the Bank of Canada raised rates in June by .25 basis points, but is this the start of the rate climb? We do not think so. In fact, we think rates will remain unchanged at the next meeting (July 20th). Too many factors still indicate that the economy is not in full recovery mode. With continued market losses and investor uneasiness remaining high, coupled with the US Fed vocally committing to keeping rates low, we do not see any reason why Canada would raise. Really they shouldn’t have raised rates in June, but then they would have broken their promise!
So, as a mortgage consumer what should you do (fixed or variable)? More than ever this is a question of risk tolerance more than interest. Either choice will have some benefits. Short term, say over the next 18 months, the variable should continue to provide huge savings. After that it is a numbers game based on just where Prime ends up. So what is more important to you savings or security?
If it is security, you may be leaning towards a 5 year fixed rate product. During the spring and early summer the banks have been pushing 5 year fixed rate products on consumers, but even for those inclined to lock in, this may not be the best choice. The best bang for your buck (rate and reasonable security) is likely found in the 3 year fixed product not the 5 year.
More than just rate you want to ensure you have a mortgage strategy that will help reach your financial goals during these ongoing uneasy economic times. Please contact your mortgage professional at Mortgage Connection to put together the right strategy for your individual needs.