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Interest Rates Once Again Stay Put

The Bank of Canada governor Stephen Poloz announced today that prime interest rate will stay right where itis as 1.25%.

The Bank of Canada constantly monitors Canadian economic activity, and adjusts the prime rate higher or lower to increase or decrease inflation. The inflation target has been 2% for several years, and hasn’t shifted much higher or lower than that.

 

Variable Rates

Variable rate mortgage holders are breathing another sigh of relief. This is the third straight interest rate announcement that resulted in no increase. The last announcement was on April 18, 2018.

No increase also means that the special 5-year variable rates that the major banks just introduced maintain their amazing value. Since variable rates are calculated as prime minus a discount, such as prime – 0.9%, if interest had gone up those rates would have gone up as well. Luckily, the 2.45% rate from BMO, TD, RBC, and Scotia and the 2.39% rate from HSBC are still there for now.

Take a look at this graph to see how one increase a year (there is at least one more increase expected for 2018) will affect your variable mortgage rate:

 

 *This graph is based on a home valued at $300,000 with a 10% down payment at a rate of 3.45% fixed and 2.45% variable with an annual increase of 0.25%.

 

Has nothing changed?

In their last announcement, the Bank blamed the new mortgage rules for slow first quarter growth in the housing market. They were incorrect in their prediction that the economy would increase by 2.5%, as it only increased by 1.3%, and shifted their prediction towards the next quarter.

NAFTA uncertainty also played a role in their previous decision, but as nothing concrete has been done one way or the other, that uncertainty is still hanging around. If you recall the Brexit vote, their economy had a decline too as no one knew what to expect from such a landmark decision.

The housing market has definitely changed, so a steady interest rate will only help buyers and sellers. Buyers can continue to take advantage of super low variable rates for longer, and sellers can continue to sell their houses to people who can afford a mortgage.

The real estate market is becoming more active just in time for summer, which coincides nicely with the steady interest rate. If you’re planning on taking advantage of special variable rates before they expire at the beginning of June, use an affordability calculator to see how a low rate can affect what you can afford.


Ali Zaidi UW Ali Zaidi UW 01/26/2019
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