The Bank of Canada recently announced a cut to the overnight rate recently from 1% down to .75%. This can be seen as a proactive approach to protect the Canadian economy from the potential risks due to lower oil prices.
Here’s what this cut to the overnight rate might mean to you.
The 5 year fixed bond rate (which determines the 5 year fixed mortgage rates) has dropped below 1.00%. This means fixed rate could potential come down even lower than the record lows that we currently have. Chances are lenders will be offering very attractive Variable and 5 Fixed rates for the upcoming spring market.
In fact as of January 28, some lenders have already announced a drop in their fixed rates.
If you currently have a fixed rate mortgage, your mortgage payments will remain unchanged. However, if your mortgage is coming up for renewal in the next 16 months, now is the time to talk to your mortgage broker and discuss what your options are to save more of your money.
If you have a variable rate mortgage, you may see your mortgage payments reduce over the next few months. The Variable rate is dependent on the lender’s Prime Rate. The Prime Rate is set at the discretion of each lender and is influenced by a number of economic factors, one of which is the Overnight rate.
For those who are thinking about opening a HELOC (Home Equity line of credit) to do an upcoming renovation or to put into a college fund – the cost to borrow may come down along with the variable rate.
Dropping the Overnight rate was an unexpected decision by the Bank of Canada which will impact all home owners. If you have any questions about your home financing, feel free to contact me and I can help you work on a long term plan to reach your home ownership goals.