The major banks did not release any new interest rate predictions during the month of May. I could only find forecast tables showing their expectation that the Bank of Canada overnight rate (which is tied to the Chartered Bank prime rate) will not be rising until mid-2010.
The liquidity crunch seems to be easing. The pricing for variable rate mortgages has slid down to Prime + 0.60% for some lenders from a high of Prime + 1.0% in October 2008. The 5 year rate has also come down slightly to 3.79% for standard mortgages (although there are lower rates for “no frills” mortgages).
Here is what the major banks are forecasting.
- BMO expects interest rates to start rebounding in 3rd quarter of 2010 – BMO Economic Research Focus dated May 22, 2009
- CIBC World Markets forecasts the BoC to hold the overnight rate at its current level of 1/4% at least until the June 2010 – CIBC World Markets May 13, 2009
- RBC forecasts the BoC staying at its current level of 1/4% until the 2rd Quarter of 2010. After that, RBC is forecasting a 1% increase in interest rates by the end of 2010 – RBC Financial Market Forecast dated May 8, 2009
- National bank remains the lone dissenter as they expect rates to increase by the 1st Quarter of 2010. Their forecast for 2010 is an average prime rate of 4.25% – National Bank Monthly Economic Monitor dated May 2009
- I could not find interest rate forecasts for Scotia Bank and TD Bank.
Given the extremely low interest rates today, I am recommending locking-in to a long-term mortgage (at least 5 years). That’s if you have the new variable rate mortgages which are price above prime. While there is some savings to be had by keeping a variable mortgage for the next 6-8 months, the savings would not be significant.
For those with the “old” variable rate mortgages which were priced below prime (some at 0.90% below prime), it is a harder call. If you have a couple of more years to go on that mortgage, I would keep that mortgage. For you, interest rates have to rise by at least 3 percent before you reach the fixed rate mortgage rate.
Is it important to work with a mortgage professional that is up-to-date on interest rate trends? Absolutely! The interest on your mortgage will be the biggest expense in your home purchase. You’ll need a mortgage broker that thoroughly understands interest rate trends and how this affects your choice of your mortgage programme.
Stay up-to-date on interest rates and home buying trends by signing up for my e-newsletter at www.bcmortgage.ca/opt_in.htm .
