Rates have come down once again!
Bank of Canada reduced the overnight rate by 0.25%, bringing it from 4.75% to 4.50%. Which for most lenders will bring the Prime rate from 6.95% to 6.70%
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 7.45% to 7.20%. Where if you have a Variable/Adjustable Rate Mortgage, it typically ranges from Prime - .50% to -1.10% bringing your current Rate 5.85% - 6.45% and decreasing it to 5.60% - 6.20%
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.
Encouraged by underling trends in the Canadian economy, the Bank of Canada today cut its overnight policy interest rate by 0.25% to 4.50%. This is the second incremental reduction we’ve seen in as many months and while both 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 including shelter inflation
Inflation measured by the Consumer Price Index moderated to 2.7% in June after increasing in May
Broad inflationary pressures are easing, and the Bank’s preferred measures of core inflation have been below 3% for several months and the breadth of price increases across components of the CPI is now near its historical norm
Shelter price inflation remains high, driven by rent and mortgage interest costs, and is still the biggest contributor to total inflation
Inflation is also elevated in services that are closely affected by wages, such as restaurants and personal care
Canadian economic performance and outlook
Economic growth “likely” picked up to about 1.5% through the first half of 2024, however, with robust population growth of about 3%, the economy’s potential output is still growing faster than GDP, which means excess supply has increased
Household spending, including both consumer purchases and housing, has been “weak”
There are signs of slack in the labour market with the unemployment rate rising to 6.4% and with employment continuing to grow more slowly than the labour force and job seekers taking longer to find work
Wage growth is showing some signs of moderating, but remains elevated
GDP growth is forecast to increase in the second half of 2024 and through 2025, reflecting stronger exports and a recovery in household spending and business investment as borrowing costs ease
Residential investment is expected to grow robustly
With new government limits on admissions of non-permanent residents, population growth should slow in 2025
Global economic performance and outlook
The global economy is expected to continue expanding at an annual rate of about 3% through 2026
While inflation is still above central bank targets in most advanced economies, it is forecast to ease gradually
In the United States, an anticipated economic slowdown is materializing, with consumption growth moderating and US inflation appearing to resume its downward path
In the euro area, growth is picking up following a weak 2023
China’s economy is growing modestly, with weak domestic demand partially offset by strong exports
Global financial conditions have eased, with lower bond yields, buoyant equity prices, and robust corporate debt issuances
The Canadian dollar has been relatively stable and oil prices are around the levels assumed in the Bank’s April’s Monetary Policy Report
Summary comments and outlook
The Bank forecasts that Canadian GDP will grow at 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026 and that a strengthening economy will gradually absorb excess supply through 2025 and into 2026.
As a result of an easing in broad price pressures, the Bank expects inflation to move closer to 2%, its long-stated goal. As a result, the Bank’s Governing Council decided to reduce the policy interest rate by 25 basis points.
It further noted that while ongoing excess supply is lowering inflationary pressures, price pressures in some important parts of the economy—notably shelter and some other services—are “holding inflation up.”
Accordingly, the Bank said it is carefully assessing these “opposing forces.” Monetary policy decisions therefore will be guided by incoming information and the Bank’s assessment of the implications for the inflation outlook.
Once again, the statement noted in conclusion that the Bank remains “resolute in its commitment to restoring price stability for Canadians.”
Stay Tuned
Next Schedule Interest Rate announcements will be Sept 4th, 2024
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