Bank of Canada’s next rate announcement is set for March 4, and BoC’s senior deputy governor Carolyn Wilkins stated yesterday that the bank is concerned about Canada’s labour market and hopes that low and stable inflation will help spur more job creation. “The economy still has room to grow” and that the bank’s monetary policy will “support the needed adjustments,” she explained according to MortgageBrokerNews.ca.
Given low oil prices and other factors, three (CIBC, TD Bank and RBC) out of the five major banks are predicting another rate cut, reports MortgageBrokerNews.ca:
Canada’s largest bank [RBC] has forecasted the BoC overnight rate will sit at 0.50 per cent by year’s end before climbing back up to two per cent by the end of 2016. The overnight rate currently sits at ¾ of a per cent.
More recently, the Bank of Montreal’s senior economist Benjamin Reitzes echoed the other banks by forecasted another rate cut next month and added the possibility of further easing.
Last week, the Bloomberg Nanos Canadian Confidence Index also fell to its lowest level since May 2013. The index measures consumer optimism, which was lowest in Atlantic Canada and highest in Ontario. Sub indexes looking at job security and personal finance also went down.
What does this mean for Canadian borrowers?
Since BoC’s rate announcement earlier this month, lenders have cut prime rate, which means that borrowers in a variable-rate mortgage (based on the lender’s prime lending rate) have seen their interest rate go down as a result. Those in a fixed-rate mortgage would continue paying the same rate as before or could refinance (but likely with a prepayment penalty if they decided to refinance before the end of their term).
The good news for those in the process of buying a home is that if you’re pre-approved for a mortgage and the lender’s rate drops before you close, the lender will typically give you the lower rate provided you qualify based on credit history and other criteria. If the rate went up between the time you were pre-approved and closed on the property, you’d typically keep the same rate provided you closed within the lender’s allotted time frame.