Many of us were surprised today when Bank of Canada Governor Stephen Poloz announced another increase in the Prime rate raising it to 3.20%. This means that your mortgage rate has likely risen by the same .25%.
The Variable rate mortgage has consistently been an excellent choice because of the savings we’ve generated compared to the 5 year fixed rate. Those savings have not dissappeared because of a slight increase over the past few months. The variable rate mortgage still has a spread of .40-1.20% compared to the prevailing 5 year fixed rate of 3.39% today. Meaning it is still not the right time to convert to a fixed term. That being said I would be happy to discuss your specific situation.
The recent increase in interest rates is a result of the stronger than expected performance in the Canadian economy. The year over year Canadian GDP (Gross Domestic Product) jumped 3.6% in the first quarter of 2017, to 4.5% in the second quarter. This growth rate exceeds the predictions of the Bank of Canada.
You wouldn’t be wrong in assuming that the Bank of Canada is pumping the brakes on our economy. The growth was unexpected by almost all. Last month in August 2017 there was a slight dip in manufacturing numbers and unemployment continues to be low. Canada actually has the best performing economy in the entire G7, and that is factoring in the downward pressure on housing, and lower oil prices. Today’s increase put prime back to where it was in January 2015 just before the crash in Oil prices.
So what will happen with housing? Well I believe that you will see a continue softening of values. The likely result of today’s rate increase will likely cause housing market to decrease by another 5 to 10 percent. I estimate a more normal 3 – 7% annual increase in home values beginning next year. The days of 20% year over year price increases are done for now. And that is a good thing.
When you got your Variable Rate Mortgage we did a “stress test”. Even a mortgage at Prime today is still about 35% lower than what we used to “Qualify” you for your mortgage. So please don’t worry about affordability. You can expect an increase in the interest portion of your mortgage of approx 25 dollars per 100k per month. Its not money anyone wants to spend, but it is still a far better deal than a fixed rate.
I hope this information has been of value to you. Please feel free to reach out to me directly at email@example.com or by cell at 905 334 9111.