More Good News For Variable Rate Mortgages
“Bank Of Canada Holds Pat On The Over Night Rate For July”
This week, the Governor Carney announced that the Bank of Canada’s overnight rate was going to stay put at its current 1% level.
Not only is it going to stay put, but much of the economic and financial prognostication seems to think there may not be any rate increase until May of 2012.
Here’s more on the recent BoC announcement … http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/07/deciphering-the-bocs-hieroglyphics.html
That’s the great thing about interest rates is that they are basically impossible to predict with an accurately.
But as the article referred to above mentions, all the careful wording, which everyone tries to analyze to death for clues, seemed to be pointing in the direction of nothing happening any time soon.
This is of course good news for variable rate mortgage holders who will be directly impacted by an increase rates.
The other side of this coin is that even though the overnight rate remains unchanged, rates are still going to have to go up at some point.
The access to cheap money is great, but it can also cause more problems in the long term such as inflation and overheating the economy.
One of the things the article also alluded to is something called the neutral interest rate, which was a new term for me.
Essentially what this refers to is a BoC overnight rate that should ideally move in the 2.5% to 4.0% range, depending on who you talk to.
This becomes an interesting metric for anyone that holds a variable rare mortgage in that upward movement in rates in the not so distant future are likely to move into this range, which would translate to a 1.5% to 3% higher variable mortgage rate.
So the key question then for variable mortgage holders is will they be able to afford their mortgage if rates increase to this “neutral interest rate range”?
If you can’t, there there’s still some time to do something about it, based on some of the projections that interest rates will not increase until next May at the earliest.
At least this gives you something to go buy. Its hard to answer the question as to whether or not you can afford higher interest rates when you don’t have any context as to what higher rates could be.
This is whole “neutral rate range” is not set in stone either, but does provide a measure stick of sorts to crunch some numbers against.
If you have any questions about variable mortgage rares and strategies you can deploy to reduce your lending risk, I suggest you give me a call and I’ll make sure you get all your questions answered right away.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel