On January 21st the Bank of Canada (BoC) made a surprise announcement cutting the overnight lending rate by ¼% from 1% to 0.75%. This is the first change in over 4 years and dispels all the rumours and predictions that rates would soon begin to rise. At the time of writing, the major banks have not followed this decrease by lowering their prime lending rate which currently remains at 3%. As each bank controls their individual prime rate, this BoC rate cut currently will not affect consumer lending rates for everything from car loans and lines of credit, to variable rate mortgages. Hopefully the banks will make a change before too long as the whole point of the Bank of Canada lowering rates is to help stimulate the economy, so if consumer borrowing costs don’t come down, the move may not have the desired results.... The other notable story developing is the Canadian bond market yields which are a key driver for fixed rate mortgages. Since oil has steepened its decline, the bond yields have followed suit and as of the writing of this story, the 5 year bond yield is in the 0.85% range. This should translate into lower fixed rates in the not too distant future.
It looks like we have sunny days ahead for anyone negotiating their mortgage or buying a home in 2015. The message is quite clear…expect lower rates on mortgages, and now is probably not the time to convert your variable rate mortgage to a fixed rate as there are likely some legs left in this ultra-low rate environment. Before making any move, consumers should absolutely consult with a mortgage professional who will give them independent and unbiased advice. Sign Up Here for Monthly Mortgage Updates
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