Thursday, October 09, 2008

Mortgage Rate Reaction to Bank of Canada Interest Rate cuts


As you are by now aware, the Bank of Canada lowered their prime rate yesterday by 50 basis points (0.50%) to 4.25%.

Typically banks and other lending institutions will match the BOCs rate but in this case, we are seeing decreases of only 25 basis points to 4.5%. The reason why Canadian financial institutions are not reacting as aggressively is due to their own cost of borrowing being significantly higher due to higher risk involved in lending money to each other.

These rate discounts were unscheduled and unexpected as this is the first time since the terrorist attacks of Sept. 11, 2001 that the BOC has made an unscheduled rate change.

Despite the decrease in the prime rate, at least three more lenders increased their 5 year fixed rates yesterday. Will this trend of increasing rates continue despite a lower prime rate? It is hard to predict at this time due to the volatility of the financial institutions over the past few weeks especially.

My guess is that these increasing fixed rates are transitory as it is rumoured that the Bank of Canada will be dropping the prime rate by an additional 50 basis points following their next rate announcement on October 21st.

Today's lowest rates are 5.50% on a five year fixed and FOR TODAY ONLY,

I have mortgage contact that can still offer prime (4.50%) on the variable. As of tomorrow, prime +1% will be the lowest available.

I hope this email finds you and your family healthy and happy!

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