09/06/2017
School's back and hockey is back. That's the good news. In other news, today the Bank of Canada announced that it is increasing the overnight rate again as predicted. They had indicated that this would happen but we expected it in October. Doesn't really make that much difference that it is happening a month earlier. I guess the BOC decided why wait for the inevitable.
This means that the Prime rate will increase as well. It will go from 2.95% to 3.2% for most banks. This will affect all lines of credit and variable rate mortgages.
What does this mean for you. (I sent this out last month but it's good to see it again)
1. The Prime Rate change only affects Variable rate mortgages and lines of credit. If you have a FIXED rate mortgage there is no change for you.
2. Depending on your exact Variable rate mortgage you may see your payment go up next month. The change to your rate should not happen until the 1st of October, so your September payment will not show the change.
3. Just to put it into perspective, for Variable rate mortgages, you can expect your new payment to be roughly $13 more per $100,000 of mortgage that you have. So a $200,000 mortgage will see a $26 increase per month and so on. This is only an estimate so depending on your specific mortgage situation it could vary.
This move by the Bank of Canada is in line with their monetary policy to get interest rates back to a healthy and manageable level. We have been in a very depressed rate market for many years leading so growth in household debt. Historically we are still in a very low rate situation, we are just recovering from a dangerously low rate market. The Bank of Canada has given no indications of future changes to the rate and that only they will monitor the economic data and see what happens.
Below is the Bank of Canada's explanation as to why they choose to raise the rate. Call me if you have any questions.
Recent economic data have been stronger than expected, supporting the Bank’s view that growth in Canada is becoming more broadly-based and self-sustaining. Consumer spending remains robust, underpinned by continued solid employment and income growth. There has also been more widespread strength in business investment and in exports. Meanwhile, the housing sector appears to be cooling in some markets in response to recent changes in tax and housing finance policies. The Bank continues to expect a moderation in the pace of economic growth in the second half of 2017, for the reasons described in the July Monetary Policy Report (MPR), but the level of GDP is now higher than the Bank had expected.
The global economic expansion is becoming more synchronous, as anticipated in July, with stronger-than-expected indicators of growth, including higher industrial commodity prices. However, significant geopolitical risks and uncertainties around international trade and fiscal policies remain, leading to a weaker US dollar against many major currencies. In this context, the Canadian dollar has appreciated, also reflecting the relative strength of Canada’s economy.
While inflation remains below the 2 per cent target, it has evolved largely as expected in July. There has been a slight increase in both total CPI and the Bank’s core measures of inflation, consistent with the dissipating negative impact of temporary price shocks and the absorption of economic slack. Nonetheless, there remains some excess capacity in Canada’s labour market, and wage and price pressures are still more subdued than historical relationships would suggest, as observed in some other advanced economies.
Given the stronger-than-expected economic performance, Governing Council judges that today’s removal of some of the considerable monetary policy stimulus in place is warranted. Future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments as they inform the outlook for inflation. Particular focus will be given to the evolution of the economy’s potential, and to labour market conditions. Furthermore, given elevated household indebtedness, close attention will be paid to the sensitivity of the economy to higher interest rates.
Fixed interest rates are on the rise as well. If you are thinking of buying or refinancing call me right away so I can lock in todays low rates.
Regardless of this increase to the Prime lending rate, I am still recommending that clients remain in their existing variable rate mortgages. If you have a variable rate that is less than prime minus .4% (.4%.3%.2% and so on). Call me as I may have some options to save you more money.
For those of you considering locking in your variable rate into a fixed rate, call me to discuss.
The date for the Bank of Canada's next announcement is scheduled for Oct 25, 2017.
Kindest regards,
Colin Ward, AMP
Partner
Axiom Mortgage Solutions
403-262-9932
[email protected]
