We saw a sudden jump in fixed rates last week which means Canadians looking to break their existing mortgage and refinance at a lower rate may have missed the best rates in recent history. But that doesn't mean people can't still trim their payments.
TD was the first to raise their rates, raising its five-year closed mortgages by a whopping 0.4 percentage points to 5.85%. Three other big banks followed in TD's footsteps and raised their posted rates in the last twenty-four hours, and other lenders are expected to follow suit.
With interest rates floating near historical lows, Canadian home owners who locked in last week may have been fortunate enough to negotiate a fixed-rate five-year mortgage as low as 3.54%. Although no one knows where interest rates are headed, the consensus is that they are unlikely to be this low again for a long time.
Economists believe interest rates will rise, not now but in the very near future, three, four, five months from now they will be higher. Definitely a year from now they will be higher. And in two years, they could be notably higher.
The stunningly low interest rates have led many Canadians to break their existing mortgage and get in at a lower rate. The decision to break an existing mortgage depends on the penalty, as well as how many years are left on the existing mortgage. It might, for instance, make more sense to break a mortgage with a year left on it as opposed to one with four years left.
Penalties for breaking a mortgage loan can be either the greater of three months' interest or the difference between the interest the bank could make on your mortgage as originally arranged versus lending money out at current rates. Most recently the so-called interest rate differential, or IRD, is the larger penalty and the one many lenders use. All of this is specific to the lender and subject to negotiation. Contact a mortgage broker to help you determine if refinancing makes sense for you right now or if it is best to wait until the end of your term.
Given that the Bank of Canada has said interest rates are likely to remain unchanged until the second quarter of 2010, a variable rate can provide huge savings for home owners who can stomach a little risk. These rates are as low as 2.65% today!
Tuesday, June 16, 2009
Thursday, June 4, 2009
Bank of Canada Holds Prime Rate
OTTAWA - The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.
Information received since the Bank's April Monetary Policy Report (MPR) is broadly consistent with the Bank's medium-term outlook for output and inflation in Canada. The economy is undergoing major restructuring in a number of sectors. The already significant output gap will continue to widen through the third quarter, putting downward pressure on inflation. The Bank continues to expect that the global and Canadian recoveries will be more muted than usual.
In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly. If the unprecedentedly rapid rise in the Canadian dollar (which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency) proves persistent, it could fully offset these positive factors.
The outlook is subject to considerable uncertainty. While the underlying macroeconomic risks are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection remain tilted slightly to the downside.
Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.
The Bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework outlined in the April MPR.
Information note:The next scheduled date for announcing the overnight rate target is 21 July 2009. A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 23 July 2009.
Information received since the Bank's April Monetary Policy Report (MPR) is broadly consistent with the Bank's medium-term outlook for output and inflation in Canada. The economy is undergoing major restructuring in a number of sectors. The already significant output gap will continue to widen through the third quarter, putting downward pressure on inflation. The Bank continues to expect that the global and Canadian recoveries will be more muted than usual.
In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly. If the unprecedentedly rapid rise in the Canadian dollar (which reflects a combination of higher commodity prices and generalized weakness in the U.S. currency) proves persistent, it could fully offset these positive factors.
The outlook is subject to considerable uncertainty. While the underlying macroeconomic risks are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection remain tilted slightly to the downside.
Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.
The Bank retains considerable flexibility in the conduct of monetary policy at low interest rates, consistent with the framework outlined in the April MPR.
Information note:The next scheduled date for announcing the overnight rate target is 21 July 2009. A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 23 July 2009.
Wednesday, June 3, 2009
Mortgage Rates on The Rise
It has been expected for some time as we were experiencing the lowest mortgage rates in Canadian history. Bond rates have been rising for the past few months which has now pushed lending rates higher.
RBC, BMO, TD, Scotiabank, and CIBC all increased their posted rates on five-year, fixed-rate mortgages by 0.2 per cent to 5.45 per cent. The changes at RBC and BMO took effect yesterday, while new rates at TD, Scotiabank and CIBC will be available today.
Rates are still very low and it is still a great time to borrow money but it does appear we have seen the bottom and most experts agree rates will rise for the remainder of 2009.
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