No Change for Key Rates

clip_image001The 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:

  • “The global economy has slowed markedly…”
  • The Bank now expects that “…the euro area…will experience a brief recession.”
  • “the Canadian economy (is) now expected to return to full capacity by the end of 2013” (it was previously mid-2012)
  • “core inflation is expected to be…declining through 2012”
  • Canada’s “financial system (is) functioning well”
  • “there is considerable monetary policy stimulus in Canada”

The bank left out language about potential rate hikes or cuts, but slashed its 2012 Canadian growth forecast from 2.6% to 1.9%.

With a commitment from the U.S. Fed to keep its policy rates “exceptionally low” until mid-2013, there is little expectation that the BOC will diverge and raise rates substantially before then.

The bank also hinted that if the euro-area crisis is not contained, that could be a reason to lower rates here.

According to the current Big 6 bank consensus forecast, 2012 should see a 50 bps increase in prime rate. Financial markets don’t believe that, however, with derivatives traders effectively pricing in no change by the Bank of Canada in the next year.

The final BoC rate meeting for 2012 is December 6.

5-year bond yields, which guide fixed mortgage rates, fell 10 bps after the BoC’s announcement (as of this writing).

Steve Huebl & Rob McLister, CMT

  1. Great blog, Rob – my wife and I about to buy our first home, so I’ve been doing lots of research and your articles (and the comments section!) have been a rich source of information. We have the option of splitting our mortgage into fixed and variable components, and are considering doing so because some stability in our payments would be good but we want to take advantage of variable rates. We have been offered a 4-year fixed rate at 3.09 and variable at P-0.6, and can split that how we like – we’re planning on an even 50:50. [We could also get a 5-year fixed at 3.39, which we would split with the P-0.6 variable]. I would welcome anyone’s thoughts on our options – thanks.

  2. That a good deal CR and gives you some sense of the security you want. You should go with it. I am all about VRM but am playing the high risk high reward game.

  3. Chris – thanks for the feedback. MB – we went to a broker (who was very helpful and responsive) as well as our bank (Vancity). We will almost certainly go with our bank, because they offered rates/terms that were competitive with what the broker could offer us, and we have a long relationship with them so pre-approval was straightforward.

  4. CR. . . Your bank “matched” your brokers rate. If they really appreciated ypur business, they would have given that to you in the first place. . . like your broker did??
    Just a reminder. To your bank, you’re just an addition to their bottom line. Your broker on the other hand, will ALWAYS look out for your best interests (as they already did) and they’ll continue to do so in the future as they are unbiased to the products out there.
    Sometimes the cheapest or easiest deal. . is not always the Best Deal.

  5. I believe credit unions like Vancity also pay patronage/profit sharing. Typically to the tune of around 5% of interest or so. Do the banks brokers deal with return a share of profits to your clients?

  6. Keeping the key lending rate steady is welcome news to all in the mortgage industry. With a low prime rate, variable mortgages remain a viable option. But the comments made alert us that factoring in Europe’s financial instablity and the world economy as a whole, although the economic forecast for Canada is better than expected, any downturn to their economy could adversely effect ours.

  7. Darlene,
    Get off your high horse. The bank offered to match the rate. How do you know it was because they “didn’t appreciate their business”. It doesn’t matter WHEN they matched the rates and conditions — it only matters IF they did. Brokers are in the business to make money just like the banks and to say that they are all ALWAYS look out for my best interest is just as ridiculous as saying all banks ALWAYS do. If they are happy with their bank’s service and they got an equal offer than there is nothing wrong with going with the bank. I believe (and many consumers agree) that it is up to the BROKERS to give me a reason not to go with my bank and not the other way around when all things are equal.

  8. Thanks Marc, I said “typically pay 5%” as I’m in Alberta and that’s the going rate around here. Thanks for clarifying.

  9. Sorry but you are inaccurate again.
    At Alberta’s biggest credit unions you would have received a lot less than 5%.
    Servus paid 1.02% in 2010
    First Calgary paid 1.37% in 2010
    These percentages are based on mortgage interest paid so if you paid $5,000 in interest to Servus you would have got a little over $50 back.
    Credit unions also pay share dividends sometimes but those are usually negligible for most people.

  10. CR,
    If you have at least 20% down have great benefits like long term disability (covergae) little chance of losing your job and don’t mind making any money on your house for ten years…then go for it!
    The only reason real estate has done so well is cheap rates. The thing that can change everything is a new slow down in the economy…meaning lots of jobs lost! So even with cheap rates real estate will go down, how much is any ones guess.

  11. I know SERVUS’s business well. The SERVUS website dividend calculator is not accurate and overstates the actual dividends the members receive.
    Second, the last time I met with them, they were not rate competative since they did not offer anyone VRM’s below prime. NO Exceptions!

  12. How about for next two years? is the variable rate, let’s say p-0.5 (5 yr)is better than the scotiabank’s fixed 3 year for 2.49?

  13. Your consideration between a variable or fixed shouldn’t only be based on whether or not rates will go up but also the spread between the variable and fixed rates you are considering. When we got our last income property financed the prime rate would have to almost double to break even with the fixed rate we were looking at.

  14. That 2.49% rate is for two years not three.
    Which is better depends on you. Personally I don’t see the point of taking a risk on a variable at these rates.

  15. ConsumerAgent:
    Your bank wants to force its products down your throat, will never compare competitors’ mortgages for you, has mortgage salespeople and not advisors, and will never give you its lowest rate up front. If those aren’t reasons enough to use a good broker, I don’t know what is.

  16. Our mortgage is up for renewal and up until today I have been considering a 5 year term variable rate mortgage with the option to lock in at anytime. Today I have been offered a 3year fixed at 3%. I am not sure what to do.
    All comments are welcome and thanks for the support.

  17. Watch the marketing of the big Banks remember common sense. I do not think banks spend money on marketing a five year locked if their shareholders would earn more profit on variable rate mortgages.

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