As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.
At 10:00 am EST, Wednesday January 21st, 2015 the Bank of Canada again did what nobody expected them to do … they cut their overnight rate by a quarter point. At the moment we are unsure as to what this might mean for the Prime lending rate, however, we believe Prime rate will remain at 3.00%. This is fabulous news for the consumer, but don’t forget to make the most of the low payments you still have, as the rate will increase in the future. If you haven’t done so already, give me a call and we can chat about helping you get set up with a great GIC, Tax Free Savings Account, or Retirement Savings Plan as your payments continue to remain low. So did you, or someone you know, blow their budget over the holiday season and have started to get those dreaded credit card bills in and the reality is starting to sink in… let me help you get back on track with a review of your financial situation which might be a savings plan, credit counseling or debt consolidation to pay off high interest loans or credit cards. If you would like to chat about some budgeting and saving strategies – let me know, as I would be happy to assist.
Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision today:
“The oil price shock is occurring against a backdrop of solid and more broadly-based growth in Canada in recent quarters. Outside the energy sector, we are beginning to see the anticipated sequence of increased foreign demand, stronger exports, improved business confidence and investment, and employment growth. However, there is considerable uncertainty about the speed with which this sequence will evolve and how it will be affected by the drop in oil prices. Business investment in the energy-producing sector will decline. Canada’s weaker terms of trade will have an adverse impact on incomes and wealth, reducing domestic demand growth.
Although there is considerable uncertainty around the outlook, the Bank is projecting real GDP growth will slow to about 1 1/2 per cent and the output gap to widen in the first half of 2015. The negative impact of lower oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar, and the Bank’s monetary policy response. The Bank expects Canada’s economy to gradually strengthen in the second half of this year, with real GDP growth averaging 2.1 per cent in 2015 and 2.4 per cent in 2016. The economy is expected to return to full capacity around the end of 2016, a little later than was expected in October”.
Based on this news, the Bank has clearly become concerned with not only the Canadian economy, but the global economy as well. These are interesting times and before we celebrate lower borrowing costs, let’s not forget that a struggling economy affects us all. Important to note, future cuts have not been ruled out; however, it is our hope that they will not be needed and Canada, Alberta particularly, will bounce back quickly.
As for fixed rates, the bond market has experienced one rally after another driving yields lower. Although it is possible fixed rates could fall further, it is highly unlikely we will see the 120 day wholesale rate slip below 2.89%.
Based on this recent announcement, and the anticipation that the prime rate will still remain unchanged for the foreseeable future; unless you feel otherwise, I’d recommend that you remain with your current adjustable rate product, as the interest is lower than a fixed term rate right now. However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and formulate a solid strategy. The next announcement on any change to the prime rate is March 4th, 2015 at which time I’ll be in touch again.
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