Another Rate Reduction!
Bank of Canada reduced the overnight rate by 0.25%, bringing it from 4.50% to 4.25%. Which for most lenders will bring the Prime rate from 6.70% to 6.45%
Now remember, this directly impacts those with a Variable/Adjustable Rate Mortgage. This does not directly impact Fixed Rates.
For Example: If you have a Home Equity Line of Credit, the rate is typically Prime + .50%. So this would bring your rate from 7.20% to 6.95%. Where if you have a Variable/Adjustable Rate Mortgage, it typically ranges from Prime - .50% to -1.10% bringing your current Rate 5.60% - 6.20% and decreasing it to 5.35% - 5.95%
What is the Bank of Canada Overnight Rate?
The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market.
The Bank of Canada holds this Key Lending rate. They might lower it to encourage borrowing and spending OR they may increase it to curb inflation and debt levels.
Major lenders typically raise their prime rate when there is a hike. Thats the number they use to set interest rates for loans and mortgages.
Unlike a fixed rate where one is locked in to their rate, those in a variable rate will be affected by these changes. Home owners with fixed rate mortgages won't be affected until they have to renew.
Should I lock into a Fixed Rate now?
Historically variable rates have shown to save you more money in the long run.
A few things you should consider before locking into a Fixed rate is:
Are you planning to sell your home in the near future? Then we would highly recommend you stay in your variable rate mortgage.
Can your budget handle a payment increase if rates go up?
Will you be putting extra money down on your mortgage each month? If so, the savings from a variable rate can help you pay down your mortgage faster.
If you are considering locking in, give us a call to discuss first. We have a fun little calculator to help you forecast your savings if you decide to stay with your variable rate.
Whats to come??
Source: First National - one of Canada's largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.
Spurred on by underlying trends in the Canadian economy, the Bank of Canada today cut its overnight policy interest rate by 0.25% to 4.25%. This is the third reduction we’ve seen this year and while all cuts have been modest, they are moving Canada toward less restrictive monetary policy.
We summarize the Bank’s rationale for this decision by summarizing its observations below, including its forward-looking comments for signs of what may happen next.
Canadian inflation
As expected, inflation slowed further to 2.5% in July
The Bank’s preferred measures of core inflation averaged around 2.5%
The “share of components” of the consumer price index are growing above 3%, roughly at their historical norm
High shelter price inflation is still the biggest contributor to total inflation but is starting to slow. Inflation also remains elevated in some other services
Canadian economic performance and outlook
In Canada, the economy grew by 2.1% in the second quarter – led by government spending and business investment – and this rate was “slightly stronger” than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July
The Canadian labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity
Global economic performance and outlook
The global economy expanded by about 2.50% in the second quarter, consistent with projections in the Bank’s July Monetary Policy Report
In the United States, economic growth was stronger than expected, led by consumption, but the labour market has slowed
Euro-area growth has been boosted by tourism and other services, while manufacturing has been soft
Inflation in both regions continues to moderate. In China, weak domestic demand weighed on economic growth
Global financial conditions have eased further since July, with declines in bond yields. The Canadian dollar has appreciated modestly, largely reflecting a lower US dollar. Oil prices are lower than assumed in July
Summary comments and outlook
In making today’s decision, the Bank noted that excess supply in the economy continues to put downward pressure on inflation, while price increases in shelter and some other services are holding inflation up. As a result, Governing Council is “carefully assessing” these opposing forces on inflation. Monetary policy decisions will be guided, therefore, by incoming information and the Bank’s assessment of the implications for the inflation outlook.
And has it has been doing for some time, the Bank said it “remains resolute” in its commitment to restoring price stability for Canadians.”
Stay Tuned
Next Schedule Interest Rate announcements will be Oct 23rd, 2024
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