The Bank of Canada (The Bank) will make its next target rate announcement next Wednesday (July 15), with most mortgage executives predicting no move in the rate.
“The Bank of Canada’s target for the overnight rate is currently at a historic low of 0.25 per cent. The Bank has reiterated in their announcements that they are at their lower bound and will maintain this rate as long as required,” says James Laird, co-founder of Ratehub.ca and president of CanWise Financial mortgage brokerage.
Justin Thouin, co-founder and CEO of LowestRates.ca agrees, expecting the current rate to have a long shelf life.
““ There is virtually no chance The Bank can increase its benchmark interest rate in the foreseeable future,” says Thouin. “I don’t have a crystal ball but I would be surprised if that rate didn’t rise for at least two years. We are starting to see the large Canadian banks report major losses and raising its key rate would further stress the banking system and that is something The Bank wishes to avoid at all costs.”
A panel of economists formed by Finder.com has mixed opinions about how long the bank will hold the rate.
Nearly half of the panelists say the rate will hold for more than a year and an additional 40 per cent don’t think there will be a rate move until 2022. Only 13.33 per cent believe there will be any movement within the next 12 months.
The Bank has history and experience to fall back on. After the 2008-2009 economic crisis ended, it increased its benchmark rate twice in 2010 and, quickly realizing that was too soon, made no increases until 2015.
Out of all the bad news surrounding the virus, a long-term rate hold is a bright light for consumers.
“This is good news for mortgage rates, especially variable rates,” says Thouin. “Variable rates will likely go down. Historically, we have seen variable rates at prime-minus-one or even lower, whereas currently they sit at prime minus 0.5 or so.
“Over the past 20 years borrowers have almost always paid less interest by choosing a variable rate mortgage. But if having cost certainty is important to you, then a fixed-rate mortgage is not a bad decision, as interest rates are near historic lows and going to stay at these levels for some time.”
Start your planning early, says Laird.
“With rates at historic lows, there is minimal room for any further cuts. If you have a renewal coming up, compare mortgage rates to make sure you are getting the best one. So long as your employment is secure and your income has not decreased, you should have no issues re-qualifying with a new provider at renewal time,” he says. “Once you are four months away from your renewal date, start comparing rates and apply for a rate hold. This holds the rate until your renewal date and protects you from rate increases. If rates go down, you can still get the lower rate.”
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