At 10:00 am EST, Wednesday May 25th, 2016 the Bank of Canada did what we expected them to do … they continue to hold the overnight rate at 0.50%.   What this means to you is that once again the prime rate on your mortgage, line of credit or student loan will not change and remains at 2.70%.  This is great news, but are you still making the most of the low payments? I ask because Prime rate will increase in the future.   By now you have likely filed your 2015 Income Tax Return – what are you planning to do with your expected refund?   Give me a call and we can chat about helping you make the most of that refund and show you additional savings on your mortgage – I have some great budgeting and savings strategies for you.  Alternatively, if you owe Revenue Canada, I can help as well by potentially accessing a line of credit or the equity in your home to get them paid off as soon as possible to avoid high interest costs and penalties – let me know, as I would be happy to assist either way.

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision today:

“The global economy is evolving largely as the Bank projected in its April Monetary Policy Report (MPR). In the United States, despite weakness in the first quarter, a number of indicators, including employment, point to a return to solid growth in 2016. Financial conditions remain accommodative, with ongoing geopolitical factors contributing to fragile market sentiment. Oil prices are higher, in part because of short-term supply disruptions.

In Canada, the economy’s structural adjustment to the oil price shock continues, but is proving to be uneven. Growth in the first quarter of 2016 appears to be in line with the Bank’s April projection, although business investment and intentions remain disappointing. The second quarter will be much weaker than predicted because of the devastating Alberta wildfires. The Bank’s preliminary assessment is that fire-related destruction and the associated halt to oil production will cut about 1 1/4 percentage points off real GDP growth in the second quarter. The economy is expected to rebound in the third quarter, as oil production resumes and reconstruction begins. While the Canadian dollar has been fluctuating in response to shifting expectations of US monetary policy and higher oil prices, it is now close to the level assumed in April.”

As in the past, the Bank still does not expect to increase their rate in the foreseeable future with any meaningful change most likely to occur sometime in 2017, depending on the economist you listen to.  The BOC is waiting to see economic growth on a more upward direction and become more sustainable for the long term.  Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

Fixed rates haven’t moved since our last announcement and continue to hover around 2.59% to 2.69% for an average five-year fixed term. This is a great opportunity to rethink your strategy for those with current mortgage rates above 3%. The potential for additional savings is great.

Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current adjustable rate product.  However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. Conversely, if you feel you would like to explore an adjustable rate option, give me a shout and we can chat about a couple of different strategies. The next announcement on any change to the prime rate is July 13, 2016, at which time I’ll be in touch again.

I wonder if I can ask a favor – this is a great time for first time home buyers who are thinking of purchasing in the Spring/Summer  to start with a pre-approval plan now to get them on track and save unnecessary interest.  We are expecting interest rates to increase slightly after July 1 as all lenders begin to price in addition costs as a result of the Department of Finance (DoF) wanting to reduce Ottawa’s direct exposure to mortgage risk. CMHC’s answer is to raise the cost of government-sponsored funding. It is advisable to start planning ahead and would be happy to provide an idea of closing costs and monthly budget payments to start those that you know on the path to home ownership.  Also if you hear a friend or family member talk about going thru a financially tough time – maybe I can help with some budgeting and debt consolidation options for them.  In either of these cases, would you mind passing my contact information on to them – this is very much appreciated