B. of Canda Update ... Steady as She Goes!

Update courtesy of Matthew Chan! ... Thanks Matt!

Good morning  Jim:

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and, as promised, 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 9:00 am EST, Tuesday December 4th, 2012, the Bank of Canada again did what we expected them to do… they continued to maintain their overnight rate.  Here is a link to an article from the Financial Post on this rate change:
http://business.financialpost.com/2012/12/04/bank-of-canada-holds-rates-as-growth-slows/

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 3.00%.  This of course is fabulous news but don’t forget to make the most of the low payments you still have as the rate will increase in the future.  I recommend you chat with a financial advisor about a Tax Free Savings Account or some RRSP contributions to trigger a potential income tax refund next year as your payments continue to remain low!  If you don’t have a financial advisor, let me know and I’d be happy to recommend one to you.

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision:
“The economic expansion in the United States is progressing at a gradual pace and is being held back by uncertainty related to the fiscal cliff.   Europe remains in recession, Chinese growth appears to be stabilizing and global financial conditions remain stimulative, though vulnerable to major shocks from the U.S. or Europe.    In Canada, economic activity in the third quarter was weak, owing in part to transitory disruptions in the energy sector... the pace of economic growth is expected to pick up through 2013. The expansion is expected to be driven mainly by growth in consumption and business investment, reflecting very stimulative domestic financial conditions.”

Even though Canada’s economy was slower than expected in the last quarter, the bank still expects it to pick up momentum in 2013.  They are unlikely to increase their rate in the foreseeable future with any change most likely to occur sometime in mid to late 2013.  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 changed much at all since the last announcement, at around 2.99% to 3.29% for a five year fixed term.

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 variable 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 also if it is suitable for you. The next announcement on any change to the prime rate is January 23rd, 2013 at which time I’ll be in touch again.

I wonder if I can ask a favour – rates are still so low right now and it is a great time for refinancing especially to consolidate high interest debt or buying an investment property, as I can hold rates for up to six months.  If you know of someone that is looking for advice on their mortgage options, with no obligation, would you mind passing my contact information on to them – this is very much appreciated.

I’d like to take this opportunity to wish you and your family a very happy holiday and extremely prosperous 2013.

Yours truly


Matthew Chan, AMP, CA, MBA
Mortgage Planner

Dominion Lending Centres - Downtown Financial
Tel: (604) 773-2775
Fax: (604) 648-9553
Email: matt@mortgageplan.ca
Web: www.mortgageplan.ca

Message To Feds: ... Think!

The Bank of Canada surprised absolutely no one in maintaining its overnight rate at 1% Tuesday, although it now suggests there may be little choice but to increase it in order to curb rising household debt.

Canadian Real Estate Magazine
“Despite the lower forecast for household spending,” said the Bank in its Monetary Policy Report released Wednesday, “the bank continues to expect further increases in the household debt-to-income ratio in coming quarters.”

Ostensibly that's good news for landlords, who can expect to see a rise in demand for their units if the overnight goes higher.

Analysts are interpreting the banks comments to mean the threat of a higher overnight rate remains on the table, despite the mortgage rule changes brought in earlier this month and meant to cool the housing markets in Toronto and Vancouver.

That intervention was enough to keep the bank from upping the rate at Tuesday’s review, but for how much longer, ask analysts.

“The Bank has decided to maintain the target for the overnight rate at 1 per cent,” reads the rate update. “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term.

“The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.”

Still, it is now warning households to brace for an increase in their debt load in the coming months – an indication, say economists, that the bank may move to increase rates within the next few months.

There remain signs of  "overbuilding" in the housing market, said the Central Bank Wednesday.