The Canadian Economy shrank in February for the first time in five months as the manufacturing sector suffered its biggest contraction since the worst stretch of the recession and the wholesale trade also declined. The February numbers cast doubt on the notion that the Bank of Canada will start raising interest rates again before the summer even as it watches for signs of inflation.
Just over two years ago when the credit crunch hit the Canadian economy the variable rate mortgage product went from prime -.75 or -.80 to prime + 1.00%. Over the following years the lenders gradually began discounting the variable rate mortgage again, coming down from prime + 1.00% to prime + .60% to eventually today where it is averaging prime -.75%. We are talking nearly 2 full points decrease. As fixed rates were much higher in 2008 and 2009, taken a variable mortgage was still a good option. However there is an opportunity now to take even more advantage of the variable mortgage rate.
The Bank of Canada meet today to discuss the economy and future of interest rates. As expected the prime/variable interest rate remained unchanged (bank overnight lending rate 1.00% and retail rate still at 3.00%). A strong loonie and has kept inflation in check which is the driving force behind higher interest rates. The Bank of Canada gave no indication of increasing rate over the short term. Next meeting is May 31st. This is great news for the mortgage financing markets. With variable rates as low as 2.25% this is a great time to be purchasing a new property or refinancing an existing mortgage to get a better interest rate.
Going for a mortgage loan is an all important decision. Appropriate planning and lot of consideration is required for sure. When it comes to choosing the type of mortgage loan, there are basically three choices available in front of the borrower. As a borrower, you can either go with a fixed rate mortgage loan, a variable/adjustable rate mortgage loan or both.
During recent years it has been observed that many lenders are often found reluctant to finance people overlooking their poor or bad credit history. There are however a number of lenders who deal with borrowers who have bad credit.
What is Mortgage amortization?
When setting up your mortgage loan the mortgage amortization is the length of time the lender sets your payments at to pay back the loan. Typically 25 year amortization is the norm when taken out a new mortgage however a borrower can choose a amortization as low as 5 years and as high as 30 years. Over the past 3 years we have seen the amortization rules go from 25 up to 40 years and back down to 30 years.
TD bank announced today that it will be raising fixed term mortgages on Tuesday April 5th. Rates are expected to increase by .35% with the 5 year posted rate (used for qualifying 1 to 4 year fixed and variable mortgages) increasing to 5.69%. So far no other lender has announced a rate increase however a lender never increases rates alone so expect all lenders to follow suit.
After a busy January and February mortgage financing markets have cooled off. With Spring now on our door step this should help to get the markets going again.
The next Bank of Canada meeting is in May. The market is not expecting a rate increase. After that the next meeting will be in July.
With the Canadian dollar riding high against the US dollar this will put pressure on Bank of Canada/Government to keep interest rates low.