he Bank of Canada reduced its key interest rate by half a point today to its lowest level ever. The Bank has cut this key rate by four percentage points since December 2007. In its announcement the Bank stated that this rate is to remain at its current level or lower until there are “clear signs” that the economy is recovering.
The Bank also noted that “The effects of the recent aggressive monetary and fiscal policy actions in Canada and other major economies will begin to be felt in the second half of this year and will build through 2010. Once the global financial system stabilizes and global growth recovers, the underlying strength of the Canadian economy and financial sector should ensure a more rapid recovery in Canada than in most other industrialized economies.”
Those with existing variable rate mortgages will benefit directly from this recent news – these mortgages are linked to the prime rate. However, there can be some variation in when, or to what degree, lenders react to a Bank of Canada rate announcement. There are lenders who change immediately after a Bank of Canada rate move, while some lenders re-set their prime rate on the first of the month following and some even do so quarterly. In addition, after recent rate announcements by the Bank, some lenders matched the Bank’s drop only after a delay, and some did not match the full rate cut.
Currently, pricing for new variable-rate mortgages is typically above the prime rate. Those looking for a new variable-rate mortgage may wish to get pre-approved, to protect themselves if variable-rate pricing in relation to prime continues increase in the next few months.
Pricing for fixed-rate mortgages is not directly affected by today’s announcement. However, some fixed rates have been trending downward in recent week.
