Posts Tagged ‘economy’

There is a new normal in the Canadian Mortgage Market.  The old normal was discounted Prime Rates on variable mortgages, and fixed rates more representative of the bond yield. 

Welcome to the “now” …

Last week, CIBC Senior Economist Benjamin Tal said “it will be a while before we see a variable rate discount again…the new normal will be Prime or Prime minus 0.25%”.  This is our reality.

What are rates going to look like in the future?  It’s a question we as Mortgage Specialists are being asked frequently.  All anyone can provide is an educated guess because the mortgage market is changing daily as is the consumer reaction to this news, and ultimately, the government’s reaction.

Most analysts believe that rates should be decreasing, for the short term, some of their commentary being:

“Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half of 2009.”  CMHC

“Some further monetary stimulus (i.e. rate cuts) will likely be required to achieve the 2% inflation target over the medium term.” Bank of Canada

“Credit market traders are pricing in a 100% chance of a 1/4% cut and a 53% chance of a 1/2% cut by year-end. “  CEP

Why are rates coming down?  One reason, according to TD economist Pascal Gauthier, is because the U.S. economy may “record its worst performance in decades, retreating by around 3% in Q4, with the Canadian economy mirroring this performance with a 2.5-3.0% decline, the worst since 1991.”  Moreover, the Bank of Canada’s worst enemy, inflation, is currently no longer a clear and present danger to our economy.

What does this mean for you as a home-buyer? 

If you currently have a variable rate mortgage at Prime Minus, then your monthly mortgage payment amounts should have decreased dramatically due to the large lowering of Prime Rate.  You are in great shape.

If you are a in the process of purchasing a home now, variable rates are typically at Prime Plus One, which is on the high side compared with what we have seen in the past 6 months or so.  Depending on your preference, a variable rate mortgage still offers a lower rate than the current fixed rates being offered.

If you’re in the market for a new mortgage, contact your Calgary and Southern Alberta MBN Mortgage Specialist and we can help you examine your options and arrive at a strategy best suited to your needs.  Good advice in markets like these is imperative when making a choice on rate, term, type of mortgage, and amortization.

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