Bank Of Canada drops key interest rates by .25%!

The Bank of Canada this morning dropped the key interest rate by.25%. Major banks are expected to pass on the full rate drop to consumers.
 
People know that mortgage rates are at all-time lows.  What people don't know is how long it will last.
 
Few can tell in advance when higher rates will come.  The only way most people can time the market is with hindsight when it's clear by looking at a chart that rates have bottomed.
 
From a macro economic standpoint there are additional reasons to consider a long-term rate lock:
 
    * The Bank of Canada's overnight target rate is down to 0.50%.  That means there is very little room for bankers' acceptance rates and prime rate to fall further.  (Both influence variable mortgage rates.)
    * Most economists expect that stimulus-led inflation will push up bond yields (and fixed mortgages rates) well before the economy actually recovers.
    * Mortgage spreads have slowly been improving this year. As spreads get tighter lender margins often get smaller. This too may impede further fixed-rate declines.
    * Bonds have become heavily overbought because investors have flocked to them for safety. If traders start to value return more than safety, bonds will fall and bond yields will rise.
 
The Bank of Canada announcement today will undoubtedly affect the rate-lock picture. Their unusual and very public commitment to keep rates low until June 2010 (contingent on inflation) may help depress bond yields further for the short-to-medium term. With yields now well under the key 2.00-2.15% area there is clearly less urgency to consider locking in existing variable-rate mortgages.


WealthBridge Corporation is a licensed and registered FSCO mortgage brokerage specializing in private lending serving the GTA. FSC0 Licence # 11283

Sue Heddle

Sue Heddle

Sales Representative
CENTURY 21 Miller Real Estate Ltd., Brokerage*
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