This morning, the Bank of Canada announced that they will be maintaining their overnight rate at 0.25%. No big surprise here, and any movement from the BOC this morning would have been shocking.
The overnight rate is what financial institutions use to set their prime rate, which is currently 2.45%. Prime rate does not influence fixed mortgage rates and is only of interest to those with variable rate mortgages, or HELOCs (Home Equity Line of Credit).
As fixed mortgage rates are not tied to prime rate, the Bank of Canada rate announcements do not have a direct influence on them. In fact, fixed rates can move independently of prime rate. The biggest example of this was on March 13th, 2020, when the BOC made an unexpected rate announcement, slashing their overnight rate by 0.50%. Bond yields starting soaring, placing immediate, upward pressure on fixed mortgage rates. Some lenders announced immediate increases to their 5 year fixed rates by as much as 0.25%, with further increases added the following week.
What You Can Expect From The Next Bank of Canada Rate Announcement
The next scheduled interest rate announcement from the Bank of Canada will be on September 9th. Some are expecting another rate cut, but I highly doubt this will come to fruition. I’ll be as bold as to say that it won’t.
Economic activity dropped sharply in the first half of the year, which was caused by shutdowns created by COVID-19. This has brought us to low mortgage rates we are seeing today. With consumer and financial industry sentiment improving, we can expect to see economic grow, however it will be slow. That is, as long as we don’t experience a second wave of COVID-19 resulting in another shut down.
What Can Be Expected From Mortgage Rates Moving Forward?
While some have predicted that the Bank of Canada will cut their overnight rate down to 0%, it would take another major economic catastrophe for this to be considered. They will take every measure to avoid another cut. While this is possible, it’s not probable. I would expect the prime rate to remain at its current level of 2.45% for at least the next two to three years. I would not be surprised if it held the status quo for the next five. Time will tell of course. Eventually, the Bank of Canada will start increasing their rate, and when they do, I would expect it to increase it slowly and cautiously.
Record Low Mortgage Rates
Fixed mortgage rates have now hit new record lows, with 5 year fixed rates as low as 1.89%*. There is still room for fixed mortgage rates to fall even lower, and I would expect insured rates to trend down closer to 1.50% within the next couple of months.
Mortgage lenders have also been increasing their variable rate discounts, with rates as low as prime -0.70% (1.75%)*. Just as with fixed rates, there is room for lenders to further increase their discounts.
As long as we can keep the coronavirus under control, and our economy open, even lower mortgage rates can be expected soon. Of course, anything can happen.
*Mortgage rates can vary based on a variety of different factors. The rates quoted above are for insured mortgages, or those with 35% or greater down payment or equity. Purchases or switches. Property must be owner occupied, and have a value under $1 million, OR home must have been purchased prior to November 30th, 2016. Some exceptions apply. Please contact us to find out the lowest rate that applies to your specific situation.
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The Paul Meredith Team will be donating $250 to local food banks for every mortgage we fund from April 30-July 31st, 2020.
With well over one million Canadians now out of work, the food banks need our help more than ever.
For this period in 2019, we closed 93 mortgages, which would have meant a donation of $23,250! We want to exceed this number this year! Regardless of whether you are purchasing, refinancing, or have a mortgage coming up for renewal, all closed mortgages closed through the Paul Meredith Team will add to the total donated.