Category Archives: Mortgage Rate Updates

Bank of Canada Interest Rate Announcement – January 23, 2013

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interest rate announcement

Despite an upcoming change in job title, departing Bank of Canada Governor Mark Carney announced this morning that he will leave the overnight lending rate at 1.00 per cent.

The Bank of Canada (BoC) looks at a number of factors when determining monetary policy, such as foreign and domestic economic performance, levels of household debt, and the national inflation rate. Today’s announcement came as no surprise, as the Canadian economy continues to under-perform.

The gross domestic product (GDP) has slowed to a crawl – after a 0.1 decline in August and no growth in September, the GDP grew a lackluster 0.1 per cent in October. This is well below the BoC’s forecast of 2.5 per cent for the fourth quarter of 2012.

“The slowdown in the Canadian economy in the second half of 2012 was more pronounced than anticipated and economic activity is expected to be more restrained. The economy is now forecast to return to full capacity in the second half of 2014.” Continue reading →

Bank of Canada Interest Rate Announcement – December 4th, 2012

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To no one’s surprise, Mark Carney announced this morning that the Bank of Canada will keep the overnight lending rate at 1.00 per cent.

The overnight rate is important to Canadian mortgage owners because it influences the interest rates at which banks can borrow, which then trickles down to the consumer level. Homeowners with variable mortgages attached to prime rate are most exposed to changes in the overnight rate.

The Bank of Canada looks at a number of factors when determining monetary policy, such as levels of household debt, foreign and domestic economic performance, and the national inflation rate.

The gross domestic product (GDP) shows the Canadian economy grew by only 0.6 per cent in the third quarter, well below the 1.00 that the central bank was expected. This result, combined with a flat September, make Ottawa’s fourth quarter GDP forecast of 2.5 per cent look near impossible.

Now, what is the likelihood of an interest rate hike? Don’t expect one anytime soon. Many economists were expecting déjà vu from today’s announcement, because when the economy shows only moderate growth, a potential interest rate hike becomes less likely.

The Bank of Canada maintained its somewhat hawkish tone in its outlook. “Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.”

Ottawa has left the overnight rate untouched for 27 consecutive months.

Bank of Canada Interest Rate Announcement

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The Bank of Canada (BoC) has once again elected to leave the key interest rate untouched. The central bank has kept this rate, also referred to as the target for the overnight rate, at 1.00 per since September of 2010.

Mark Carney has stated that he would like to raise the key interest rate soon in an effort to deter Canadians from taking on more debt. Ultra-low mortgage interest rates artificially inflate long-term affordability and incentivize consumers to borrow money. Unfortunately, Canadians have been taking on household debt to a record 163 per cent debt-to-income ratio. This has caused the Bank of Canada governor to label it as the greatest domestic threat to the economy.

“In Canada, while global headwinds continue to restrain economic activity, domestic factors are supporting a moderate expansion. Following the recent period of below-potential growth, the economy is expected to pick up and return to full capacity by the end of 2013,” said the the Bank of Canada in their release this morning. The central bank also believes household debt will continue to grow. ”Housing activity is expected to decline from historically high levels, while the household debt burden is expected to rise further before stabilizing by the end of the projection horizon.”

The relationship between the average prime lending rate and the overnight rate

Lenders use the key interest rate to set their prime lending rates. For example, if the key interest rate were to increase by 0.25 per cent, lenders would make a comparable rate increase to their prime lending rate. Fortunately for variable rate mortgage holders, the key interest rate remained at 1.00 per cent, leaving their mortgage rate unharmed. Currently, the best 5-year variable rate available on RateHub.ca is Prime – 0.45 or 2.55 per cent.

Here is a chart of what the prime lending rate is currently listed at for Canada’s five largest banks:

Major Canadian Bank Prime lending rate
Bank of Montreal 3.00%
CIBC 3.00%
Scotiabank 3.00%
RBC 3.00%
TD Canada Trust 3.00%

The central bank will make one more interest rate announcement before the end of the year on December 4th, 2012.

Monday Mortgage Update: October 15, 2012

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Mortgage Rate Wars: Part III?

BMO re-introduced the 2.99 per cent 5-year fixed mortgage rate over the weekend. This mortgage product was the centre of controversy, earlier in the year, as the ultra-low 2.99 per cent interest rate spurred two separate mortgage interest rate wars. However, BMO’s latest offering ran for two short days, from October 13th to October 14th, perhaps to avoid further scrutiny from Jim Flaherty. Following the second round of the mortgage rate wars in March, Canada’s Finance Minister paid a visit to each bank’s CEO to discuss their institutions’ lending practices.

“You should be cautious about your lending practices, because this is the type of practice that led to a mortgage crisis in the United States several years ago,” Flaherty said, recounting what he told the CEOs. “My expectation is that you will not compete to the bottom on interest rates, which is the direction [the U.S. was] going.” 1

Immediately following Flaherty’s talk in April, discounted 5-year fixed rates shot up to 3.25 per cent from 2.99 per cent. However, only two months later, 5-year fixed rates began descending towards sub-three per cent interest rates again. Today, the lowest 5-year fixed rate available is 2.94 per cent.

It is not likely that BMO, or any other bank, will engage in a third mortgage rate war. The consequences of doing so will draw further negative attention from the Canadian government.
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Monday Mortgage Update: October 1, 2012

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Two weeks ago, we tracked discounted 3-year fixed rates from RBC and BMO and found that their rates dropped by 0.20 per cent (20 bps) each. Typically, when one of the Big 5 adjusts one of their mortgage rates, others tend to follow. As expected, Desjardins, TD Bank, Laurentian Bank, and National Bank all lowered their 3-year fixed rates in response to RBC and BMO’s move.

Bank

Previous Rate

Current Rate

Change in Basis Points (bps)
TD Bank

4.05%

3.10%

Decrease of 105 bps
Laurentian Bank

4.05%

3.85%

Decrease of 20 bps
National Bank

4.05%

3.85%

Decrease of 20 bps
Desjardins

4.05%

3.85%

Decrease of 20 bps

Fixed mortgage rates are driven by Government of Canada (GoC) bond yields. For example, 3-year fixed mortgage rates increase when GoC 3-year bond yields increase. Examining GoC benchmark 3-year bond yield performance over the last three weeks reveals a downwards trend; from a high of 1.30 per cent on September 14th, down to a 1.14 per cent closing on Friday, for a total drop of 0.16 per cent. The reduction in 3-year benchmark bond yields have allowed banks to make similar decreases to their 3-year fixed rates. There is good probability that CIBC and Scotiabank will reply with similar rate drops in the near future.


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Monday Mortgage Update: September 17, 2012

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Mortgage Rate Forecast

Canada’s biggest banks seem to differ on where they believe the overnight rate will head next year. CIBC says the negative impact from international markets will force the Bank of Canada Governor Mark Carney to keep the overnight rate on hold at 1.00% for the duration of 2013. In their World Markets Report, they cite that there are “enough questions on the global scene” to hamper economic growth, including Europe’s debt issues and the lingering doubts about growth in the United States. RBC on the other hand, believes that Canada’s economic momentum will improve during the course of 2013, forcing the central bank to raise the overnight rate in each quarter next year.

The overnight rate influences the prime rate which drives variable mortgage rates. An increase in the overnight rate would therefore cause variable mortgage rates to rise.

If RBC’s overnight rate prediction proves to be true, variable-rate mortgage borrowers would expect to see their regular mortgage payments increase.


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Monday Mortgage Update: September 10, 2012

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Interest Rate Forecast

BMO economics released a report last week stating they believe the Bank of Canada will maintain the key interest rate at 1 per cent until the fall of 2013, pushing their previous prediction of July 2013 back a few months.

“We now expect the Bank of Canada to remain on hold deep into 2013, even as they continue to signal that the next move in rates is still likely to be higher than lower” – Douglas Porter, BMO economist

BMO’s forecast implies that variable mortgage rates will likely stay in this ultra-low environment for at least one year. Currently, 5-year variable rates are available for as low as 2.65 per cent, or Prime – 0.35.

Mortgage Rate Recap

There wasn’t much action from last week, as the only major move was from BMO, who lowered their 5-year fixed rate from 3.29 per cent, down to 3.09 per cent. However, out of all the major banks in Canada, BMO now has the lowest advertised 5-year fixed rate, ahead of ING Direct (3.19 per cent) by ten basis points.

BMO Mortgage Rates

Rate Type Previous Rate Current Rate Change in Basis Points (bps)
5-year Fixed 3.29% 3.09% Decrease of 20 bps

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Bank of Canada Interest Rate Announcement – September 5th

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The Bank of Canada governor Mark Carney has announced that no changes will be made to interest rates. As many economists predicted, the key interest rate shall remain at 1.0 per cent, where it has been since September 8th, 2010.

The Canadian economy is currently growing at a 1.8 per cent annualized rate which, although not great, is considered good relative to the economic expansion in the U.S., which continues at a gradual pace, and the recession in Europe. How these two large economies deal with policy in the future will weigh heavily on the future of Mark Carney’s interest rate decisions. According to a report by TD Bank chief economist Craig Alexander, the influence of the global economic landscape is more important [to interest rates in Canada] than anything that is happening [in Canada].

Overall, global headwinds continue to narrow economic activity in Canada, forcing the central bank to keep interest rates unchanged for the time being. However, according to Mark Carney, “Economic growth is expected to pick up through 2013, with consumption and business investment continuing to be its principal drivers.” He also noted that there are signs of slowing household spending, albeit “the household debt burden continues to rise.”

 

Monday Mortgage Update: August 20, 2012

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Interest rates likely to remain low until 2013

David LaRock, a Toronto mortgage broker, believes that mortgage rates won’t experience increases until 2013 due to a number of factors that are contributing to the consensus view. [1]

  • Our second quarter (Q2) gross-domestic-product (GDP) grew by only 1.80 per cent, which was well below the Bank of Canada’s (BoC) forecast of 2.50 per cent. Mark Carney, governor of the Bank of Canada also acknowledged that their projections for GDP growth in the US, China, Europe, and Japan are lower than their initial forecasts. Many international economies are underperforming and when combined with Canada’s lower-than-expected GDP growth, should keep the central bank wary of raising rates in the near future.
  • The US federal funds target rate, which function like Canada’s overnight target rate, is currently at 0.0 per cent and will likely stay there until mid-2013. By comparison, Canada’s overnight rate is currently 1.0 per cent. Notice the disparity between rates? Although Canada has an independent monetary policy from our neighbours to the South, if the rate gap widens too much, so too will the difference in our exchange rate. And a strong Loonie actually hinders economic momentum because it raises the cost of Canadian exports, making the prospect of higher interest rates less likely.
  • Canadian unemployment is still above 7.0 per cent, while average income growth is barely keeping pace with inflation. Canada would need to see more consistent job and income growth before Mark Carney raises rates.

Canadians are making their debt payments

Good news has emerged from the Canadian Bankers Association, the number of Canadians behind on their mortgage payments declined from January to May of this year, from 0.38 per cent to 0.34 per cent. By comparison, 11.8 per cent of Americans were at least 30 days past due or in foreclosure by the end of March 2012, according to the Mortgage Bankers Association.

The number of debts written off by Canadian credit card companies also fell, from 4.6 per cent in May, down to 4.1 per cent in June. [2]

Mortgage Rate Recap

Last week, 5-year Government of Canada bond yields rose significantly, jumping from 1.38 per cent to 1.50 per cent ING was the first major bank to respond by raising their 5-year fixed rate from 3.09 per cent to 3.19 per cent There is a strong possibility that other lenders will react with rate increases to their 5-year fixed rates in the near future. Currently, the best 5-year mortgage rate available is 2.99 per cent

ING mortgage rates

RATE TYPE

PREVIOUS RATE

CURRENT RATE

CHANGE IN BASIS POINTS

5-year fixed

3.09%

3.19%

Increase of 10 bps

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Monday Mortgage Update: August 13, 2012

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Mortgage Rate Recap

Last week, mortgage rates in Canada continued to drop, continuing a trend initiated by some of Canada’s largest lenders in mid-July. Laurentian Bank lowered their short-term rates which include the 1-year fixed, the 2-year fixed, and the 1-year fixed open mortgage rate.

Laurentian mortgage rates

RATE TYPE PREVIOUS RATE CURRENT RATE CHANGE IN BASIS POINTS
1-year fixed closed

3.50%

3.10%

Decrease of 40 bps
1-year fixed open

6.50%

6.30%

Decrease of 20 bps
2-year fixed closed

3.55%

3.35%

Decrease of 20 bps

 Where are Canada Mortgage Rates this week?

A history of weekly 5-year fixed mortgage rates and 5-year variable mortgage rates

Canadian Mortgage Rates in 2012

The average discounted mortgage rate in Canada for 2012:

Note:  This is simply a small sample size and does not represent the entire market. It does, however, offer some useful insight.