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Bank of Canada Optimistic: Benchmark Rate Raised .25%

Blog by Sara Kalke | July 31st, 2010

Bank of Canada Optimistic: Benchmark Rate Raised .25%

Back to the land of economic news... The Bank of Canada just raised the benchmark rate by .25%.  There is a full article below on what this means, but my favorite quote is this:  “The Bank now expects the economy to return to full capacity at the end of 2011, two quarters later then had been anticipated in April.”

Ok, so two quarters later than anticipated, but the economy being expected to make a full recovery is fabulous news.  A recovering economy may mean an increase in interest rates, so yes, expect higher interest rates, the possibility of rising prices and a more stable real estate market. This really means that now is a great time to buy and hold a longer term investment, but of course, if you are buying and selling within the same market (i.e. upsizing/downsizing/relocating your primary residence), the best time to buy or sell is always whenever you are ready for the change! 

Time to buy or sell? Have some real estate questions? Please call me anytime at 780-710-7669, or send me an e-mail at sarakalke@remax.net. I'm never too busy for your referrals!

Have a great long weekend!

Prime rate announcement
by Sharon Essington
News Release | Vol. 28 No. 30  | July 29, 2010
The Bank of Canada took another cautionary step forward by increasing their benchmark rate by a ¼ point. Lenders responded quickly by increasing their prime lending rate to 2.75 per cent.

While prime rate took a small move upward the Bank of Canada (BoC) scaled back expectations on the timeframe of full economic recovery, referencing the European debt crisis as one of the factors.

“The Bank now expects the economy to return to full capacity at the end of 2011, two quarters later then had been anticipated in April.”

Consumers with debt tied to the prime lending rate will see a small increase to their payments. For example, a quarter-point increase in mortgage rates will add about $46 a month for a home owner who has a $340,000 mortgage for a 35-year amortization. It's about $90 per month higher than six months ago when interest rates were half a point lower.

Borrowers could also see lines of credit or auto loans increase slightly as those are typically tied to the prime lending rate as well.

The tone of the BoC announcement was less enthusiastic this time around as well. “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighted carefully against domestic and global economic developments.”

While the rate increase was widely anticipated it will remain to be seen if the trend continues on September 8th, the next scheduled announcement date.

“The Bank of Canada is taking a small, baby step towards imposing higher interest rates on Canadians, but at this point it still leaves interest rates very low by historical standards” said Avery Shenfeld, chief economist with CIBC. Shenfeld goes on to say that “Rates are still low enough that interest payments will still be fairly well contained for the average family”

So while borrowers will see slight increases to their mortgage payments the prime lending rate remains significantly lower then current 5 year fixed-rates, especially considering a number of mortgage lenders are offering adjustable rate mortgages at prime minus .50 or .60, where as the 5 year fixed-rates are sitting around 4.20 or 4.30 per cent, at time of writing.

With interest rates continuing to be at 30 year lows and an abundance of properties for sale in Alberta’s major cities it begs the question ‘why are more first-time buyer’s not taking advantage of this situation?’ While some of the initiatives the federal government previously implemented to spur on the real estate market have seen their lifetime expire, such as the Home Renovation Tax Credit, the First-Time Home Buyers' Tax Credit (HBTC) remains in effect to assist new owners in offsetting costs involved with purchasing real estate.

Eventually Canadians will see the prime lending rate return to normal levels, but in the meantime, interest savings opportunities remain readily available. Call today to ensure you are taking full advantage of this situation.

Sharon Essington is an Accredited Mortgage Professional with Verico Canada Mortgage Direct. Sharon specializes in providing a creative approach to mortgage financing for individuals looking to take advantage of the current opportunity market. For more information on this topic, or to discuss your individual mortgage needs, please call 1-866-376-8250.