Unlike the past few interest rate announcements by the Bank of Canada, their announcement this morning was not as highly anticipated. Everyone pretty much knew the outcome, so no surprises here. As expected, the Bank of Canada maintained their overnight rate at 0.25%, which is what mortgage lenders use to set their prime rate.
The prime rate remains at 2.45%.
Is There Room For The Bank of Canada To Cut Rates Further?
There has been some mild speculation that they BOC could follow the US lead and cut their overnight rate down to 0%. However, economists believe that this would not provide much economic stimulus, so I would not hold your breath waiting for this to happen. However, if our economic situation were to worsen, then they may have no choice.
It’s expected that prime rate will remain at the current level for at least the next two years. There are however some economists who are predicting that we may see it increase later in 2021. Time will tell of course. One thing that is certain is that our economy has taken one heck of a beating. I personally would not expect the prime rate to increase earlier than 2-3 years, and I would not be surprised if it maintained its current level for longer than that.
When prime rate does start to increase, I would not expect anything major. The BOC will proceed with baby steps, implementing rate increases slowly. In order words, prime rate can be expected to remain low for years to come, making variable rate a popular choice.
In late March, variable rate discounts started shrinking fast, and many lenders were at prime rate to prime +0.20% on variable rate products. These increases were based primarily on heavy market volatility and fear. In late March, everyone was in panic mode as there is wide spread uncertainty created by the pandemic. No one knew how bad it could get, or what could be expected. It was looking as though we were heading to prime +1.00%, which is happened after the 2008 financial crisis in the US.
The Return To Normalcy And It’s Effect On Mortgage Rates
Fast forward a couple months later today. Businesses are starting to re-open. Doctors are getting better at treating the virus as they continue to learn more about it every day. People are getting used to this new way of life. While not ideal, it’s at least becoming more familiar, and there is now some light at the end of the tunnel. It seems to be stabilizing, and we’ve begun our journey back to normalcy. Positive sentiment continues to build.
As of now, the lowest 5 year fixed rate has fallen to as low as 2.14%*, and the lowest variable to prime -0.55% (1.90%)*
Further Decreases To Mortgage Rates Expected
Today’s rates are at, or close to historical lows (depending on your situation). There is still room for mortgage lenders to drop both fixed and variable rates even further. Market volatility is subsiding, resulting in increasing lender confidence. This leads to mortgage lenders loosening their collars and lowering rates. I would expect to see further rate drops to come, providing our economic situation remains semi-stable. Will we see 5 year fixed rates below 2%? It’s VERY possible that we could see rates in this range by the end of June. Time will tell of course.
*Available for purchases or switches with 35% or greater down payment / equity. The value of property must be under $1 million OR home must have been purchased prior to November 30th, 2016. Every situation can be a little different, so best to reach out to us directly to find out the lowest mortgage rate you are eligible for.
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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.
Paul Meredith is the author of the Amazon #1 best selling book, Beat the Bank
– How to Win The Mortgage Game in Canada, and has ranked as one of the top
75 mortgage brokers in Canada since 2016. He was a finalist for Mortgage
Broker of the Year in 2018, and can be seen as the exclusive mortgage broker on
season two of TV’s Top Million Dollar Agent.