Today was the big announcement that us Realtors and mortgage specialists were waiting for, well kind of. Bank Of Canada announced that it was maintaining its overnight rate at 1%, which is something they have been doing for the last 2 years. Although the Canadian economy is doing well when compared to the rest of the world, the report said the global financial conditions, amoung other reasons, have deteriorated since April hence why the overnight rate remains unchanged. The report also indicated that the bank expects the Canadian “economy to grow at a pace roughly in line with it’s production potential in the near term, before picking up throughout 2013.”
Some key factors…the bank projects the Canadian economy to grow by:
- 2.1% in 2012
- 2.3% in 2013
- 2.5% in 2014
What Does This All Mean and Why Is It Important To Me?
When a bank decides on what kind of mortgage rates to offer it’s consumers, it is based on the Bank Of Canada’s overnight rate. If the overnight rate is increased and the larger banks pay more interest to settle their accounts, they will need to increase their own interest rates via the prime lending rate, also known as “prime” and their business and consumer rates. This also holds true the other way around and allows banks to offer lower interest rates.
It’s important to you because variable rate mortgages are based on prime plus or prime minus. If the overnight rate were to increase so would your variable rate mortgage. Usually if the prime rate is low, lenders offer variable rates at prime plus a percentage. If prime is high, lenders will usually offer variable rates at prime minus a percentage. Our current prime rate sits at 3%.
So make sure to be in the know and follow the announcements if you have a mortgage. The next announcement will be made September 5, 2012 and I will definitely be posting the results here so make sure to follow along.
Fun Facts About Prime:
- Average prime rate in Canada from January 1975 to present…8.28%
- Highest Prime Rate Seen…22.75% on August 12th 1981
- Lowest Prime Rate Seen…2.25% on April 22nd 2009
For more information on mortgages and rates, make sure to visit RateHub.