Dave Larock in Interest Rate Update, Mortgages and Finances
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The Bank of Canada (BoC) held its policy rate steady last week, as was universally expected, and it also issued a statement that outlined its current view of how both domestic and foreign forces are impacting our economic momentum.
The Bank knows that its words are carefully parsed, and in today’s post I’ll highlight the key phrases that it used in its latest statement and offer my take on the implications for our mortgage rates:
In summary, the Bank doesn’t sound at though it is planning to raise its policy rate any time soon. It sees benign inflation, subdued wage and export growth, and heightened levels of uncertainty beyond our borders and it believes that the current circumstances still warrant accommodative monetary policy.
Furthermore, the Bank doesn’t want to tighten monetary policy because it believes that export growth is the key ingredient to any sustainable recovery and rate rises would cause the Loonie to appreciate further against a basket of other currencies. (The Loonie’s strength relative to other currencies is what the Bank referred to as “competitiveness challenges”.)
That said, the BoC continues to predict that the excess capacity in our economy will be absorbed in the near future, but this is really a warning and a reminder to would-be speculators who might otherwise increase their lower-rates-for-longer bets. Unfortunately, there is rising risk that the Bank’s actions speak so loudly that those speculators may no longer be hearing what it has to say on that point.
Time will tell.
Five-year Government of Canada bond yields fell five basis points this week, closing at 0.95% on Friday. Five-year fixed-rate mortgages are available at rates as low as 2.24% for high-ratio buyers, and at rates as low as 2.29% for low-ratio buyers, depending on the size of their down payment and the purchase price of the property. Meanwhile, borrowers who are looking to refinance should be able to find five-year fixed rates in the 2.59% to 2.69% range.
Five-year variable-rate mortgages are available at rates as low as prime minus 0.80% (1.90% today) for high-ratio buyers, and at rates as low as prime minus 0.70% (2.00% today) for low-ratio buyers, again depending on the size of their down payment and the purchase price of the property. Borrowers who are looking to refinance should be able to find five-year variable rates around the prime minus 0.40% to 0.45% range, which works out to 2.20% to 2.25% using today’s prime rate of 2.70%.
The Bottom Line: Observers who parsed the BoC’s latest statement had differing views about when the Bank might begin to raise its policy rate. But their disagreement was only really about how far off in the future this monetary-policy tightening might occur, and not about whether it will be any time soon.
David Larock is an independent mortgage broker and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog, Move Smartly, and on his own blog: integratedmortgageplanners.com/blog Email Dave