Mortgage Rates & Mortgage Broker News in Canada

No BoC Rate Change for 16th Straight Month

Canada’s key interest rate will begin 2012 exactly where it’s been since September 2010 – unchanged at 1.00%.

It's the longest stretch on record without a Bank of Canada rate change.

Economists didn’t expect the BOC to move rates at this meeting. Instead, they were looking for any change of language in the Bank’s official statement. As usual, there were a handful of conspicuous statements in that release. The BoC said:

Short-Term Rates Stay Put

Canada’s key interest rate will end 2011 unchanged.

The Bank of Canada left its policy rate at 1.00% today, as anticipated.

In a statement, the Bank said European economic performance will be worse than expected, Canadian and U.S. growth are “slightly” better than expected, and inflation will “ease.”

No Change for Key Rates

The Bank of Canada met today and saw no reason to move its key lending rate from 1.00%, where it has been for a little over a year.

That's precisely what the market anticipated and it means prime rate (which is the basis for variable mortgage rates) should remain at 3.00%.

The BoC’s decision comes amid ongoing economic danger in Europe, sputtering U.S. growth and surprising inflation here at home (core inflation hit a three-year high in September).

Here’s a sampling of the Bank’s commentary from this morning:

No Change to Rates

The Bank of Canada kept Canada’s key lending rate at the same place it’s been for a year: 1.00%.

As a result, variable-rate mortgage holders can expect prime rate to also stay put at 3.00%.

The BoC said this about its decision:

Deciphering The BoC's Hieroglyphics

When it comes to the future of interest rates, the Bank of Canada (BoC) is cryptic. It rarely comes right out and says what it’s thinking because that could disrupt financial markets.

Instead, the BoC plants clues in its public statements.

BoC Leaves Key Rate Untouched at 1.00%

The Bank of Canada startled no one today by leaving its key lending rate unchanged at 1.00%.

The BoC has been in a holding pattern for almost 10 months now, keeping prime rate at 3.00%—to the benefit of variable-rate mortgage holders.

A Reuters survey of 37 economists conducted prior to this announcement was unanimous in predicting today's rate hold.

All eyes quickly focused on the BoC’s official statement. Analysts say it included more hints of a rate tightening mindset. Here are highlights from that report:

Economists: Rates to Remain on Hold

Despite robust headline inflation and growing employment, the market expects no rate change when the Bank of Canada meets Tuesday.

A drab North American economy, strong loonie, and European debt concerns will keep rate hikes at bay, according to all 37 economists polled by Reuters. Not one of them expects a rate change until later this year or early 2012.

The overnight rate has now stood at 1.00% for nine months.

Here are some soundbytes about Tuesday’s rate announcement:

BOC’s Carney Warns of Runaway Housing Market

Bank of Canada Governor Mark Carney sounded more alarm bells last week. It was a warning about the perfect storm of rapidly rising home prices and the future vulnerabilities of homeowners when interest rates start rising.

Fittingly, Carney was speaking in Vancouver, where home prices are up a whopping 25.7% year-over-year—if you include the sales of high-end homes.

Bank of Canada Leaves Key Rate Unchanged

As was widely predicted, the Bank of Canada left its key lending rate unchanged at 1.00% for the sixth consecutive meeting.

A survey of 22 economists conducted by Bloomberg News prior to the rate decision found them unanimous in predicting this status quo.

The holding pattern on rates has been welcome news for variable-rate mortgage holders, with the prime rate remaining at 3.00% since September.

Bank of Canada Leaves Rates Untouched

The Bank of Canada surprised few today by keeping its key lending rate at 1.00% for the fifth consecutive meeting.

With the prime rate holding at 3.00%, today's news is yet another positive for variable-rate mortgage holders.

The BoC’s statement did have some mixed signals, but few analysts are decoding that to mean a May rate increase. Here is some of what the Bank had to say:

Getting the Best Mortgage Rate

What’s the trick to a better mortgage rate?

That’s what folks at the Bank of Canada (BoC) wanted to know.

It led them to undertake an extensive study on mortgage discounting. A draft of that study was released this month and below are its conclusions.

All quotes that follow originate from the paper’s authors: Jason Allen, Robert Clark and Jean-François Houde.

According to their research, the Canadians who get the best mortgage rates are those who:

Prime Rate Remains at 3%

The Bank of Canada left its key lending rate unchanged today, in keeping with widespread expectations.

This implies the prime rate will remain at 3%, where it’s held since September.

Here are highlights from the BoC’s statement this morning:

• “The global economic recovery is proceeding at a somewhat faster pace than the Bank had anticipated.”

Debt Growth is Moderating, BOC Deputy Says

Higher mortgage rates and stricter mortgage rules are starting to take effect, though Canadians’ debt levels are still too high for comfort.

That was the message from Agathe Cote in her first public speech as a deputy Bank of Canada governor on Monday.

Here’s a sampling of key points from her address yesterday in Kingston, Ontario:

• The Bank of Canada’s rate hikes and government’s new mortgage restrictions, including more stringent qualifying conditions, higher down payment requirements on rental properties, and lower LTVs on refinances, are “beginning to have an impact” in moderating debt risk.

The BoC Leaves Rates As-is

The Bank of Canada left the country’s key lending rate unchanged today. That keeps prime rate at 3.00% for now.

It was no surprise since every notable economist expected no action.

The Bank had this to say about Canada’s economic situation:

BoC Keeps Key Rate Unchanged

The market widely predicted the Bank of Canada would not raise rates, and it was right. The BoC has left its key lending rate at 1.00%.

In turn, prime rate will remain at 3.00%, making today’s BoC meeting a non-event for mortgage holders in the short-term.

The BoC’s call comes amid languid recent growth and inflation numbers. Here’s a sampling of the Bank’s commentary from its official statement:

• The BoC sees a “weaker-than-projected recovery in the United States.” (No revelations there.)
• The potential exists for “a more protracted and difficult global recovery.”
• “…domestic considerations…are expected to slow consumption and housing activity in Canada.”
• “Inflation in Canada has been slightly below the Bank’s July projection.”
• “The inflation outlook has been revised down and both total CPI and core inflation are now expected to converge to 2% by the end of 2012.” (As long as inflation doesn’t threaten to exceed the Bank’s 2% target for any extended period, that’s generally good news for mortgage rates.)
• The 1% overnight target rate “leaves considerable monetary stimulus in place.”

The Bank also adjusted its growth forecasts as follows:

• 2010 growth cut to 3.0% from 3.5%
• 2011 growth cut to 2.3% from 2.9%
• 2012 growth raised to 2.6% from 2.2%

Translation: Things are worse than the Bank expected.

A key takeaway here is that the BoC sees little inflation threat through 2012. That’s a long ways off. If true, this improves the odds that short-term and variable-rate mortgages will be the lowest-cost options for the next few years. (Remember, however, that the BoC can raise its forecasts just as easily as it lowers them.)

The next and final interest rate meeting of 2010 is on December 7.  As of today, most analysts expect no rate move at that meeting either.

BoC Hikes Another 1/4 Point

It could have gone either way but Mark Carney and co. felt Canada’s economy was hot enough to warrant another tightening.

The Bank of Canada has therefore raised its overnight rate target to 1%, from just 0.25% three months ago.

Here’s the gist of the Bank’s written statement today:

• “…Consumption growth is expected to remain solid and business investment to rise strongly.”
• “The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected…”
• “…Financial conditions in Canada have tightened modestly but remain exceptionally stimulative.”
• “Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.”

As a result of today’s increase, prime rate will likely climb to 3.00% this week. It would be the first time prime has seen 3% since February 2009.

If you’ve got a variable payment mortgage, this hike will add about $13 to your monthly payment, for every $100,000 you owe.*

The next BoC interest rate meeting is October 19.

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* Assumes a 25-year amortization, semi-annual compounding, and a prime rate increase of 25 basis points.

Canada’s Key Lending Rate Headed Higher

The Bank of Canada has lifted its key lending rate by 1/4 percentage point, to 0.75%.

The Bank had this to say in its written statement:

• “The global economic recovery is proceeding but is not yet self-sustaining.”
• “Housing activity is declining markedly from high levels, consistent with the Bank’s view…”
• “The Bank now expects the economy to return to full capacity at the end of 2011, two quarters later than had been anticipated in April.”
• “Both total CPI and core inflation are expected to remain near 2 per cent throughout [2011].”

The above chart (Click to enlarge) shows just how low Canada’s overnight rate is when compared to the last 10 years. Accordingly, the BoC says today’s new 0.75% rate “leaves considerable monetary stimulus in place.”

The mortgage industry now awaits confirmation from the Big 5 banks that prime rate will follow 25 basis points higher. The banks typically announce prime rate increases the same day as BoC rate hikes. The last time around (on June 1), TD Bank was the first to act, raising its prime rate at 1:32pm ET.

Bond yields, which affect fixed mortgage rates, were down across the curve following today’s BoC statement.

As of this writing, the 5-year yield has sunk to 2.31%, just a few basis points above its one-year low of 2.29%. Given that many were awaiting today’s announcement for an indicator of rate direction, we may now see 5-year fixed rates drift slightly lower in the near term.

The next Bank of Canada interest rate meeting is September 8.

The Rate Increase Cycle Begins

For 13 months, Canadians have enjoyed the lowest interest rates of all time. But the party had to end eventually.

Today was that day, as the Bank of Canada (BoC) raised its key lending rate by 0.25 percentage points.

If lenders raise prime rate by 1/4 point, as expected, homeowners with variable mortgage payments will see roughly $12 of monthly payment increase per $100,000 of mortgage.

Other highlights from today’s BoC statement:

• “Activity in Canada is unfolding largely as expected.”
• “The spillover into Canada from events in Europe has been limited to a modest fall in commodity prices and some tightening of financial conditions.”
• “Household spending is expected to decelerate to a pace more consistent with income growth.”
• “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.”

That last point, and the bond market’s muted reaction to this news, suggest that another rate hike on July 20 is far from certain. (Bond yields are down considerably today, largely because Euro-concerns have traders flocking to safe investments.)

The pace of rate increases going forward will depend heavily on global growth and the resolution of Europe’s debt problems.

As of yesterday, Big 5 bank economists were suggesting (on average) that prime rate will rise from today’s 2.25% to roughly 3.25% by year end.* By the end of 2011, their forecasts imply a 5% prime rate. But those estimates will change as weeks progress, as they always do.

On a positive note, the BoC also reassured Canadians in its statement. It said, "This decision still leaves considerable monetary stimulus in place.” Variable mortgage rates, for example, are still under 2%.  That’s just a tick above their all-time bottom.

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* Source: Mean average of the overnight rate change forecasts published by BMO, CIBC, RBC, Scotia, and TD—as of May 31, 2010.

BoC Leaves Rates Unchanged; Removes Conditional Commitment

The Bank of Canada (BoC) has kept its key interest rate at 0.25%.

What’s more interesting is the Bank’s written statement. It says, “With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus.”

In other words, the BoC is no longer pledging to refrain from rate hikes. That virtually cements a June 1 or July 20 rate increase say analysts. 

“It is an absolute 100% certainty [the Bank of Canada] will raise by July,” TD economist Craig Alexander said on BNN today.

The 5-year government bond yield (which influences 5-year fixed mortgage rates) is flying 13 basis points higher as we speak. The 1-year bond is up 14 bps!

The BoC also said it “expects the economy to return to full capacity in the second quarter of 2011.” That’s one quarter sooner than its previous forecast.

The BoC’s next interest rate meeting is June 1.

BoC To Front-Run Fed

The Bank of Canada often takes its cues from the U.S. Federal Reserve when setting Canadian interest rate policy.

This time, "The Bank of Canada is basically going to fly solo," says CIBC economist, Benjamin Tal. That’s because Canada is in a clearly stronger economic position than our southern neighbour.

Investment manager, MFC Global, agrees. It estimates that the Bank of Canada will keep its key lending rate 25-75 basis points above the fed funds rate starting this summer.

So, with economists calling for an imminent rate hike, people naturally want to know how fast rates could move.  We’ve noticed a big uptick lately in questions like: “How quickly does prime go up?”

In reality, that’s kind of like asking: “How long will it take Alex Rodriguez to hit 20 home runs this year?” You know what A-Rod has done in the past, but you’re never sure what he’ll do this year.

Just for kicks, we looked back at the last four rate cycles for clues. Doing so illustrates that it’s taken an average of 7.75 months for prime rate to rise the first 1% in a rate increase cycle. It’s taken 12 months, on average, for prime to jump 2%.

These numbers are not statistically sound because there aren’t enough samples.  Nonetheless, it’s clear that the Big banks’ forecast of a 2.75% hike in 19 months seems achievable. (Not our prediction, just an observation!)

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Sidebar:  Here’s commentary from Peter Aceto, the chief executive of ING Direct Canada, on why fixed mortgage rates have jumped so fast lately:

“It's pretty likely in this environment that your funding costs [as a lender] are going to be higher in 90 days or 120 days.”

Aceto says RBC “may have been thinking about that risk” when they chose to lead the market and raise fixed rates 85 bps.