FOR IMMEDIATE RELEASE
6 December 2011
Contact: Jeremy Harrison
613 782-8782
Ottawa - The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
Uncertainty around the global economic outlook has increased in the weeks since the Bank released its October Monetary Policy Report (MPR). Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened. Additional measures will be required to contain the European crisis. The recession in Europe is now expected to be more pronounced than the Bank had anticipated in October, as a result of increased deleveraging and tighter financial conditions, as well as necessary fiscal austerity and structural reforms.
Recent economic data suggest that growth in the United States has been slightly more robust than anticipated, largely as a result of continued vigour in consumer spending and business investment. Nonetheless, household deleveraging, fiscal consolidation and negative spillover effects from the European crisis are all expected to weigh on U.S. growth. Growth in China and other emerging-market economies continues to be strong, although there are signs that it is moderating to a more sustainable pace in response to weaker external demand and the lagged effects of past policy tightening.
On balance, recent economic indicators in Canada suggest that growth in the second half of this year is slightly stronger than the Bank projected in October. Household expenditures have more momentum than had been expected and business investment remains solid. Going forward, the weaker external outlook is expected to dampen GDP growth in Canada through financial, confidence and trade channels. The economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar.
Although total CPI inflation has been slightly higher than projected, the Bank continues to expect the inflation rate to decline as a result of reduced pressures from food and energy prices and ongoing excess supply in the economy. Core inflation has also been slightly firmer than projected and is expected to ease as the output gap persists well into 2013.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. With the target interest rate near historic lows and the financial system functioning well, there is considerable monetary policy stimulus in Canada. The Bank will continue to monitor carefully economic and financial developments in the Canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term.
Friday, December 9, 2011
ECONOMY 5 reasons why a fixed-rate mortgage could be your best bet
t's a decision that millions of Canadian homeowners struggle with repeatedly during their time as homeowners: Do they choose the security of a fixed-rate mortgage, or opt for the flexibility (and usually lower cost) of a variable rate and hope that rates don't spike higher? But right now, conditions in the mortgage market mean homeowners can actually get the best of both worlds, according to market-watchers.
Estimated ranges for posted fixed mortgage rates:
2011
1-year: 3.4 - 3.7%
5-year: 5.3 – 5.5%
2012
1-year: 3.4 - 3.8%
5-year: 5.2 – 5.7%
(Source: CMHC)
For years, we’ve seen evidence that people who opted for variable-rate mortgages ended up saving money over the fixed-rate crowd —anywhere from 77 to 90 per cent of the time, depending on the period selected and the assumptions used.
Despite that, 60 per cent of the 5.8 million mortgages out there are fixed-rate mortgages, and the five-year term is especially popular. Another 31 per cent of mortgages are variable- or adjustable-rate. The rest are hybrids that have a bit of both types of mortgages built in.
In the past year, we've seen evidence that people have been starting to swing more towards variables (see table). But in the past few months, two things have happened in the Canadian mortgage market that may have the “variable-is-best” crowd changing their minds … or at least re-thinking what used to be an easy decision.
Variable has a catch
First of all, the traditional discount that lenders used to apply to variable rate mortgages is fast becoming a thing of the past.
“In the last couple of months, there’s been a big shift back to fixed rates,” says mortgage broker Robert McLister, who edits the popular mortgage news site CanadianMortgageTrends.com. “The average discount went from prime minus 0.80 per cent to prime minus a quarter,” he told CBC News.
Widespread discounts
Average posted 5-year fixed-rate mortgage: 5.38%
Average discounted 5-year fixed-rate mortgage: 3.92%
Average discount: 1.46 percentage points
Source: CAAMP/Maritz survey, Fall 2011
That puts a typical five-year variable-rate mortgage around 2.75 per cent.
At the same time, McLister says fixed rates have dropped. Mortgage brokers can arrange a five-year fixed-rate mortgage for as little as 3.25 per cent – or about two full percentage points below the posted rates at the big banks. That rate represents a spread of just half a percentage point over the variable-rate mortgage. McLister says the spread between these two is normally 125 basis points or more (1.25 percentage points).
At this point, you may be thinking that people who have variable-rate mortgages still can't lose, because they can always choose to lock in to a fixed-rate mortgage at any time. Very true. But McLister points out that people who do this typically don’t get the lowest rates.
That’s not too surprising. After all, you can’t change lenders when you switch from a variable to a fixed mortage without paying a penalty, and your lender knows this. “The rates that lenders give to people when locking in are always at least a quarter percentage point above what’s available elsewhere in the market,” he says.
McLister also points out that it’s never immediately clear where or when mortgage rates will bottom out. “Some people may think about getting a variable in hopes of riding down rates if they drop further,” he says. “The thing is, if you’re that good at predicting interest rates, you’d make a lot more money as a bond trader.”
What people are choosing
Mortgage type All mortgages
Renewed/ refinanced in past year
Fixed-rate 60% 56%
Variable or adjustable rate 31% 37%
Combination 8% 7%
Source: CAAMP/Maritz survey, Fall 2011
Fixed-rate bargains
Of course, there are other reasons besides interest rates that can sway someone’s decision on mortgage type. If someone needs to break a five-year fixed rate mortgage early, for example, the penalty (based on what’s called the interest rate differential) can be many thousands of dollars. With a variable-rate mortgage, the penalty is never more than three months interest.
But some people will always opt for fixed-rate mortgages simply for the security of knowing that they won’t be affected by any future upswing in interest rates – at least until their mortgage comes up for renewal.
Here’s another reason to consider fixed-rate mortgages. Some lenders have chosen to stake out some market share by offering exceptional bargains at terms other than five years.
The four-year fixed-rate mortgage – not a mainstay among the big banks – has become a battleground among some other lenders that mortgage brokers use. Brokers can arrange a four-year fixed-rate mortgage for 2.99 per cent at a few non-bank lenders, and the range generally available right now goes from 2.89 per cent to 3.09 per cent. One big bank lender – Scotiabank – offers a two-year fixed-rate mortgage for 2.49 per cent, which is even less than what lenders charge for a variable-rate mortgage.
As for the future, some mortgage experts see the variable-fixed spread continuing to narrow.
'Variable mortgage rates will stay at current levels well into 2012'
—RateSupermarket.ca
"Variable mortgage rates will stay at current levels well into 2012," says a panel of five mortgage industry and academic experts surveyed by RateSupermarket.ca in December.
At the same time, the panel members predicted that fixed mortgage rates would stay low or drop further over the next 30 to 45 days, noting that there's less demand for home loans over the holdays.
Still not sure what to go for? Fixed or variable? Short or long-term?
Either way, the good news is that rates are at historic lows. Rest assured that you can’t go far wrong these days, no matter which direction you go in.
“The cost of choosing the wrong term has probably never been lower,” says McLister.
Estimated ranges for posted fixed mortgage rates:
2011
1-year: 3.4 - 3.7%
5-year: 5.3 – 5.5%
2012
1-year: 3.4 - 3.8%
5-year: 5.2 – 5.7%
(Source: CMHC)
For years, we’ve seen evidence that people who opted for variable-rate mortgages ended up saving money over the fixed-rate crowd —anywhere from 77 to 90 per cent of the time, depending on the period selected and the assumptions used.
Despite that, 60 per cent of the 5.8 million mortgages out there are fixed-rate mortgages, and the five-year term is especially popular. Another 31 per cent of mortgages are variable- or adjustable-rate. The rest are hybrids that have a bit of both types of mortgages built in.
In the past year, we've seen evidence that people have been starting to swing more towards variables (see table). But in the past few months, two things have happened in the Canadian mortgage market that may have the “variable-is-best” crowd changing their minds … or at least re-thinking what used to be an easy decision.
Variable has a catch
First of all, the traditional discount that lenders used to apply to variable rate mortgages is fast becoming a thing of the past.
“In the last couple of months, there’s been a big shift back to fixed rates,” says mortgage broker Robert McLister, who edits the popular mortgage news site CanadianMortgageTrends.com. “The average discount went from prime minus 0.80 per cent to prime minus a quarter,” he told CBC News.
Widespread discounts
Average posted 5-year fixed-rate mortgage: 5.38%
Average discounted 5-year fixed-rate mortgage: 3.92%
Average discount: 1.46 percentage points
Source: CAAMP/Maritz survey, Fall 2011
That puts a typical five-year variable-rate mortgage around 2.75 per cent.
At the same time, McLister says fixed rates have dropped. Mortgage brokers can arrange a five-year fixed-rate mortgage for as little as 3.25 per cent – or about two full percentage points below the posted rates at the big banks. That rate represents a spread of just half a percentage point over the variable-rate mortgage. McLister says the spread between these two is normally 125 basis points or more (1.25 percentage points).
At this point, you may be thinking that people who have variable-rate mortgages still can't lose, because they can always choose to lock in to a fixed-rate mortgage at any time. Very true. But McLister points out that people who do this typically don’t get the lowest rates.
That’s not too surprising. After all, you can’t change lenders when you switch from a variable to a fixed mortage without paying a penalty, and your lender knows this. “The rates that lenders give to people when locking in are always at least a quarter percentage point above what’s available elsewhere in the market,” he says.
McLister also points out that it’s never immediately clear where or when mortgage rates will bottom out. “Some people may think about getting a variable in hopes of riding down rates if they drop further,” he says. “The thing is, if you’re that good at predicting interest rates, you’d make a lot more money as a bond trader.”
What people are choosing
Mortgage type All mortgages
Renewed/ refinanced in past year
Fixed-rate 60% 56%
Variable or adjustable rate 31% 37%
Combination 8% 7%
Source: CAAMP/Maritz survey, Fall 2011
Fixed-rate bargains
Of course, there are other reasons besides interest rates that can sway someone’s decision on mortgage type. If someone needs to break a five-year fixed rate mortgage early, for example, the penalty (based on what’s called the interest rate differential) can be many thousands of dollars. With a variable-rate mortgage, the penalty is never more than three months interest.
But some people will always opt for fixed-rate mortgages simply for the security of knowing that they won’t be affected by any future upswing in interest rates – at least until their mortgage comes up for renewal.
Here’s another reason to consider fixed-rate mortgages. Some lenders have chosen to stake out some market share by offering exceptional bargains at terms other than five years.
The four-year fixed-rate mortgage – not a mainstay among the big banks – has become a battleground among some other lenders that mortgage brokers use. Brokers can arrange a four-year fixed-rate mortgage for 2.99 per cent at a few non-bank lenders, and the range generally available right now goes from 2.89 per cent to 3.09 per cent. One big bank lender – Scotiabank – offers a two-year fixed-rate mortgage for 2.49 per cent, which is even less than what lenders charge for a variable-rate mortgage.
As for the future, some mortgage experts see the variable-fixed spread continuing to narrow.
'Variable mortgage rates will stay at current levels well into 2012'
—RateSupermarket.ca
"Variable mortgage rates will stay at current levels well into 2012," says a panel of five mortgage industry and academic experts surveyed by RateSupermarket.ca in December.
At the same time, the panel members predicted that fixed mortgage rates would stay low or drop further over the next 30 to 45 days, noting that there's less demand for home loans over the holdays.
Still not sure what to go for? Fixed or variable? Short or long-term?
Either way, the good news is that rates are at historic lows. Rest assured that you can’t go far wrong these days, no matter which direction you go in.
“The cost of choosing the wrong term has probably never been lower,” says McLister.
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