Fixed Or Variable
Bank Of Canada And The Prime Rate
January 28, 2015
As you may have heard, last week the Bank Of Canada reduced it’s central rate by 0.25%. This was followed by lenders reducing their prime rate from 3% to 2.85%. So the question you probably are asking your mortgage broker is: what does this mean for mortgage rates?
There are really 2 parts to the answer and it depends whether you are interested in a fixed or variable rate mortgage:
- Fixed rate offerings will now start to fall. In fact, we are seeing this already with most lenders quickly reducing their rates. However, it is unlikely we have seen the bottom for these rates.
- Variable rates are now already 0.15% lower due to the decrease in prime. The actual rates being offered are always a function of prime (eg. prime less 0.5%) so these rates are unlikely to change. That is, prime less 0.5% is automatically reduced when prime is reduced. What is still unknown is whether or not the banks will lower prime further from 2.85%. Since they did not pass on the full 0.25% cut to consumers, only reducing prime by 0.15%, there is a good chance that they receive pressure to pass on the rest of the cuts.
What To Do If You’re Looking For A Mortgage Just Now?
If you are looking for a variable rate mortgage, our advice is to go ahead and apply as normal with the knowledge that you are now getting lower rates (and these could automatically continue to come down if prime comes down further). If you are looking for a fixed rate mortgage, our advice is to wait for a couple of weeks if you can. It is very likely these rates will continue to fall.
And of course, if you are on the fence about either you should consider a 50-50 mortgage – we wrote an article about that here: 50-50 Mortgages.
As always, if you have any questions feel free to drop us an email at firstname.lastname@example.org – we provide information completely free of charge and there is no obligation to use our services.