Bank of Canada Rate Drop Decision Had NOTHING To Do With Mortgage Rates
Bank of Canada Rate Drop Decision Had NOTHING To Do With Mortgage Rates

Mortgage Rate Drops Inevitable – Just Not Immediate

Unless you’ve been living under a rock (and even then), you’ve no doubt heard about the Bank of Canada’s big announcement on Wednesday about overnight rates going down. The bank’s target rate is being lowered by a quarter of one percentage point to 0.75 percent.  It’s a very proactive move on the part of the Bank of Canada in its stance on stimulating our slowing economy not just in Oil & Gas but elsewhere across the country.

Why Did The Central Bank Do It?

So why exactly did the Bank of Canada go this route? Well contrary to the current headlines that it had everything to do with the housing market and mortgage rates (not true) it was likely instead:

  • To stimulate capital spending in businesses; this in turn generates jobs as well as tax revenues. This is predicated on the Banks lowering their prime lending rate along with the Bank of Canada
  • To lower the dollar and therefore make our Canadian products (including energy, manufactured goods, forestry, and agriculture) more attractive for purchase by countries around the world
  • To assist in counteracting a portion of the dropping export prices for oil and thus protecting more Canadian jobs as well as provincial and federal tax revenues

What Does This Mean For The Housing Market?

Simply put a drop of ¼ percentage point should never be the deciding factor between buying a home or not. If anything, it will tremendously help the homeowners and homebuyers who have followed the variable rate mortgage strategy. This strategy, recommended by REIN since 2007, entails the property owner to choose a variable rate mortgage tied to bank prime but paying the equivalent as if they had locked it in for five years. The payments, as a result, would be higher than if they just paid the required on the variable, but all of the extra cash paid would go directly to paying down the principal of the mortgage. In the long run, this would save the homeowner or homebuyer years and many thousands of dollars in interest.

Inevitable Mortgage Rate Drops

Spring seems to be coming early… not the weather (although in BC and Alberta it has felt like it), but because, like clockwork the Mortgage Rate Wars heat up every year in the spring during the big “House Buying Season”.

This regular and predictable cycle provides such great opportunities for re-finance, renewal and new mortgage funding. This year it may prove to be extra special as you can throw the extra incentive of the Bank of Canada’s recent lowering of their Prime Rate.

So, as predictable as Daffodils coming out of the ground in Vancouver in January – the mortgage rate wars will be heating up soon.

The time to get prepared is now, analyze your current mortgages to see if making an early renewal makes financial sense, collect all of your required documentation in one binder so you are ready to jump when the perfect time comes. You just never know how much money you will save by being strategic, instead of reactive.

As a strategic real estate investor, I LOVE this time of the year. It is a great time to be pro-active in lowering your ‘operating’ costs (which is just as important to the bottom line as a rental increase is (and often even more so!)
FORECAST: Banks could slash mortgage rates to 2.5 percent by March says analyst…/Banks-could-slash-mortgage-rates-to-25-…

Looking forward to seeing you at the big Upcoming REIN/ACRE Real estate conference titled “How to Be Worry-Free… Whether the Economy Booms, Busts or Stagnates” Follow this link for more details: 

Bank of Canada Rate Drop Decision Had NOTHING To Do With Mortgage Rates was last modified: February 7th, 2015 by Don R. Campbell

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