The big news last week was the Bank of Canada`s Governor announcement that he would be lowering the overnight lending rate by .25%. This generally translates into a reduction in the prime rate as well. However, there tends to be a slow reaction to this news by the big banks. Now, I`d chaulk this up to bureaucracy as these institutions are massive in size, but if the banks were to increase rates by that same .25% the increase to prime would be swift and immediate.
Why do they do this you might ask?
It's quite simple, this change means an opportunity to put more profit into their coffers and until one lender feels enough pressure to drop their prime rate, every other lender will follow suit.
How much more profit you may be wondering?
Hundreds. of. Millions. (You read that correctly)
The lower prime rate however only affects variable rate mortgage holders, but even for fixed rate mortgage shoppers, rates should be lower than they are currently. I've taken some time to study the 5 year bond yields and in similar fashion, we should be seeing 5 year fixed rates heading lower in the near future as well. Likely another 10-20 basis points or (.10-.20%) in the next few weeks.
My advice: If you're purchasing/refinancing/renewing in 2015 and you can qualify for a variable product (Prime -.50% or better), take it. Until the price of oil goes is back into the $60-70 range and the $CAD is above .85+ cents there will be no need to worry about rates increasing.
PS- If your mortgage is up for renewal in 2015, keep a very close eye on any bank renewal offers (early renewals, cash back, etc) - I've seen some extremely uncompetitive offers in the last few months that they're hoping you don't bother to do any due diligence and grab the low hanging fruit. Run ANY offer you receive by a qualified and experienced mortgage professional. CAVEAT EMPTOR my friends!
