Natasha Shaw

By Natasha on May 27, 2015

Good morning

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

At 10:00 am EST, Wednesday May 27th, 2015 the Bank of Canada did what we expected them to do … they continue with an overnight rate of 0.75%.   What this means to you is that once again the prime rate on your mortgage, line of credit or student loan will not change and remains at 2.85%.  This is fabulous news, but are you still making the most of the low payments you still have, as the rate will increase in the future.   You have likely filed your 2014 Income Tax Return – what are you planning to do with your expected refund?   Give me a call and we can chat about helping you make the most of that refund and show you additional savings on your mortgage – I have some great budgeting and savings strategies for you.  Alternatively, if you owe Revenue Canada, I can help as well by potentially accessing a line of credit or the equity in your home to get them paid off as soon as possible to avoid their high interest costs and penalties – let me know as I would be happy to assist either way.

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision today:

“Inflation in Canada continues to track the path outlined in the Bank’s April Monetary Policy Report (MPR). Total CPI inflation is near the bottom of the Bank's 1 to 3 per cent inflation control range, largely due to the transitory effects of sharply lower energy prices. Core inflation remains above 2 per cent, boosted by the pass-through effects of past depreciation of the Canadian dollar, as well as certain sector-specific factors. Seeing through the various temporary factors, the Bank estimates that the underlying trend of inflation is 1.6 to 1.8 per cent, consistent with persistent slack in the economy. 

The outlook for the Canadian economy also remains largely in line with the April MPR. While a weak first quarter in the United States has raised questions about that economy’s underlying strength, the Bank expects a return to solid growth in the second quarter. This will help advance the rotation of demand in Canada toward more exports and business investment. Recent indicators suggest consumption in Canada is holding up relatively well, given the impact of lower oil prices on gross domestic income.”

Just as before, the Bank still does not expect to increase their rate in the foreseeable future with any meaningful change most likely now not to occur until well into 2016!  They are waiting to see economic growth on a more upward direction and become more sustainable for the long term.  Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

Fixed rates haven’t moved since our last announcement and continue to hover around 2.69% to 2.79% for a five year fixed term. This is a great opportunity to rethink your strategy for those with current mortgage rates 3.09% or greater. The potential for additional savings is great.

Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current adjustable rate product, as the interest is lower than a fixed term rate right now.  However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. Conversely, if you feel you would like to explore an adjustable rate option, give me a shout and we can chat about a couple of different strategies. The next announcement on any change to the prime rate is July 15, 2015, at which time I’ll be in touch again.

I wonder if I can ask a favor – this is a great time for first time home buyers who are thinking of purchasing in the Spring/summer  to start with a pre-approval plan now to get them on track and save unnecessary interest.  We are expecting changes to mortgage premiums specific to those with less than 10% down.  Effective June 1, the premium will be increasing from 3.15% currently to 3.60. This increase equates to about an additional $6 per month for the average borrower. In addition, Alberta title and mortgage registration costs are increasing substantially.  It is advisable to start planning ahead and would be happy to provide an idea of closing costs and monthly budget payments to start those that you know on the path to home ownership.  Also if you hear a friend or family member talk about going thru a financially tough time – maybe I can help with some budgeting and debt consolidation options for them.  In either of these cases, would you mind passing my contact information on to them – this is very much appreciated

Your Mortgage Planner,

Natasha Shaw

mtg@natashashaw.com