Happy Monday Everyone.
The European Central Bank boosted its benchmark rate by .25% on Thursday, to mixed reviews. While Germany’s economic growth warranted the increase, higher borrowing costs will heap even more suffering on the economies of Ireland, Greece, Spain and Portugal (the latter requested a bailout last week). The March job reports for Canada and the US were mixed - the headline numbers were disappointing but analysts found bits and pieces they liked.
Canadian fixed-mortgage rates increased early last week as predicted, jumping by between 30 and 35 basis points (which was the biggest move we have seen in quite a while). The five-year government of Canada bond yield dropped early last week before resuming its upward climb and closing at 2.85% on Friday (an eleven month high).
Meanwhile, with the spread between five-year fixed and five-year variable rates now at around 2%, variable rates look like a bargain. While there is vigorous debate about where variable rates are headed in the medium/long term, with inflation well under control, the short-term picture is reassuring. (Core inflation dropped to .9% in February - the lowest it has been since the measure was introduced in 1984, and well below the Bank of Canada’s target of 2%.) The Bank of Canada meets tomorrow and they are expected to leave the overnight rate unchanged.
The bottom line: If you’ve got a reasonable amount of equity in your home and can live with interest rate volatility, take a variable rate, set your mortgage payment at the fixed rate, and make hay while the sun shines!
David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog (movesmartly.com) and on his own blog (integratedmortgageplanners.com/blog). Email Dave