BoC Rate Announcement June 9 2021

KEY PONTS

• As expected the Bank of Canada announced this morning that it will be maintaining its overnight interest rate at 0.25% keeping the retail prime rate at 2.45%

• The bank is staying on track with the original plan of a slow stable post-pandemic recovery by continuing to use the Quantitative Easing program as well as leaving rates unchanged.

• The Bank of Canada is projecting that there will be a rate increase in the second half of 2022 once inflation reaches a stable 2%

THE OVERNIGHT RATE REMAINS UNCHANGED

Today the Bank of Canada met for the fourth time in 2021 to review the overnight interest rate. As expected the bank has decided to maintain the key interest rate at 0.25%. This also means that the retail prime rate will remain unchanged at 2.49%.

The bank's decision to keep interest rates constant was partially based on the lockdowns in the first half of the year causing a higher unemployment rate along with slow economic growth.

The housing market was only briefly mentioned in today's report and it appears as though the bank has no intention of interfering at this time stating " Housing market activity is expected to moderate but remain elevated."

Even with the troubles of the third lockdown, the Canadian economy is recovering at a pace the bank projected back in April. They also admitted that the economy is moving in the right direction however the BOC is committed to a slow careful recovery.

What does this mean for your rates?

• The retail prime rate will remain unchanged at 2.45% and your monthly payment on your mortgage or lines of credit will not change.

• The Bank is still projecting the next potential rate increase within the second half of 2022

Should you convert your variable rate mortgage to a fixed rate?

Should you switch to a fixed rate? The short answer to this question is not at this time! There are currently not enough signals to indicate that switching to a fixed-rate mortgage would be a benefit at this time.

If you are in a variable rate mortgage with a discount of -60 or less refinancing may be an option to save money.

If you would like to talk about your specific situation please click here and let's set up a time to talk!

THE NEXT RATE ANNOUNCEMENT DAY IS JULY 14!

5 Things You Need To Know About Variable Rate Mortgages

Variable rates are currently at all-time lows, and because of this more and more people are considering them as an option to finance their homes. In this video, I discuss the 5 things that you need to know about Variable rate mortgages.

#1 - Variable rates are not a number they are a formula

Variable rates are not an actual number but a formula applied to prime in the form of a premium or discount. For example, Prime - one means you need to subtract one from the prime rate to calculate the mortgage rate. As of April 29 2021, the current prime rate is 2.45% therefore, 2.45% - 1 = 1.45%

#2 - Variable rates may change throughout the term of your mortgage

The Bank of Canada meets Eight times a year to determine if they will make any changes to the overnight rate. The overnight rate typically directly affects the prime rate. If the bank decides to increase the prime rate by 0.25% from 2.49% to 2.70% the new prime rate will apply to the formula used to calculate your mortgage rate.

#3 - Penalties are modest

The penalties you are required to pay if you decide to exit your mortgage before the end of the term are three month's worth of interest. This is typically the cheapest penalty to leave a mortgage before the end of the term.

#4 - You can switch to a fixed-rate at any time

Throughout the term, if you decide that a variable rate mortgage does not suit your needs you can convert your mortgage into a fixed rate at any point with no fees or penalties. The fixed rate you would receive would be your lender's current rate on the day that you made the request to change your mortgage type.

#5 - Historically variable-rate mortgages save money

If you analyze variable rate mortgages over the last two decades in a majority of the cases variable rates were cheaper than fixed rates. Using this logic choosing a variable rate over a fixed rate seems like an easy decision however the truth is that no one really knows what the future of interest rates will be and if the historical trend will continue.

If you have any questions regarding variable-rate mortgages or any mortgage-related questions please give me a shout. My door is always open and I love to talk about mortgages.

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Should I Break my Fixed-Rate Mortgage for a Lower Rate?

With Mortgage rates on the rise does it make sense to refinance your current 5-year fixed mortgage in search of a lower rate?

In this video, I discuss what IRD penalties are and help you decide if you should consider breaking your current mortgage to obtain a lower rate.

0:00:18​ - What is the point of breaking your mortgage to refinance?

0:00:29​ - What factors you need to consider when breaking your mortgage

0:00:56​ - What are IRD penalties?

0:01:10​ - How are IRD penalties calculated? 0:01:29​ - What happens to IRD penalties when rate changes?

0:01:51​ - What you need to do to figure out if you can save by breaking your mortgage today.

If you have any questions about this or anything else mortgage please feel free to reach out to me anytime!

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