Eight times per year, the Bank of Canada meets to determine what the base lending rate should be. Any change to this industry benchmark indicates a possible change to corresponding rates, such as interest rates for mortgages and additional types of consumer loans. This information is also a good indicator of the current status of the Canadian economy.
As widely anticipated by economists, the Bank of Canada has left its trendsetting policy rate at 1.25 per cent. The Bank of Canada has raised its overnight rate three times since last June, each time by a quarter percentage-point. It has been on hold since January, in large part because of the uncertainty swirling around the future of the North American Free Trade Agreement with the U.S. and Mexico.
The Bank noted that the Canadian economy was a little stronger than expected in the first three months of the year, thanks in part to exports of goods that have been more robust than forecast. The impact of new federal mortgage rules and other housing policies cooled off the real estate market, while weak exports during the same period were at least in part caused by transportation bottlenecks.
The central bank is expecting the economy to rebound in the second quarter with 2.5 per cent growth, in part because of rising foreign demand, to help Canada expand by two per cent for all of 2018. The economy saw three per cent growth in 2017.
The Bank’s next rate decision is on July 11, when it also releases its next quarterly economic forecast, the Monetary Policy Report. The Bank stated that recent developments have reinforced its view that higher interest rates will be warranted to keep inflation near its target, but that it will take a gradual approach and be guided by the economic data. Many economists expect the bank to raise its key rate to 1.50 per cent on that date, with at least one more hike before the end of the year.
Fixed vs Variable - Which rate works best for me?
Although your Broker will help you identify which kind of rate best suits your situation, it is beneficial for you to know exactly what that rate means for you.
The biggest advantage of using a fixed rate over a variable rate is that you know exactly what your payments will be for the term of your mortgage; there are no surprises. Although this rate is usually a little higher than the variable rate at the time of signing, some people prefer the security of knowing what their payments will be over the chance of saving some money.
Conversely, the biggest advantage to variable rates is that you may end up paying a lower amount of interest than you would with a fixed rate. The downside is that you are taking on the risk of having a fluctuating mortgage payment, so it may be difficult to budget ahead.
Because every financial situation is different, a free consultation with your Broker is the absolute best way help you determine whether a fixed or variable rate would be beneficial for you. This is heavily dependent on the specifics of your mortgage and we encourage you to speak with your Broker to discuss the right direction moving forward for your particular situation.
The next rate announcement will take place on July 11, 2018.
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