The Bank of Canada did exactly what we have been telling customers over the past 6 months: rates will go up and probably continue that trend for up to 3% from the low held last January.
If you walk into your local bank branch tomorrow, you'll most likely hear talk of "locking in" and that now is NOT the right time to be in a variable rate mortgage. I beg to differ.
You see, The Bank of Canada has got it right! When American banks were lending based on high risk lending practices, Canadian Banks still lent money based on qualifying with real income! (Don't get me wrong, I still think our banks make lending too easy for consumers, but that is another topic worth much discussion). When American's were leveraging their homes just to get a tax break, Canadians were just starting to learn about strategies such as The Smith Manoeuvre and Canadians didn't jump in! When the American government was spending trillions on wars overseas, Canadians lent their support, but did not change our monetary policy just to fight. You see, in many respects, our conservative way of doing things kept us safe from the deep raveges of this financial meltdown south of the border.
We are now in an era where borrowing rates are so low, that the term inflation could come back into our vocabulary, but not if The Bank of Canada has anything to say about that. Their mandate is to keep the costs of good and services within a resonable level so that our money is still worth something (this is my average-Joe way of simplifying the word inflation). You can read more on this by clicking here.
The more balanced The Bank of Canada keeps the inflation rate, the less dramatic interest rates will be over time! It is NOT a coincidence that this policy came into effect in 1991, and lo and behold, variable rate mortgages have been the BEST mortgage product for consumers since then! Contrary to what the media reports, The Prime Rate went up and down during this time period. In fact, rates were as high as 9.75% in November of 1992, then low at 4.75% in 1997, back up to 7.25% in January of 2001, back down to the lows of the last year 2.25%.
In fact, anyone taking a variable rate mortgage, according to Professor Moshe Milevsky, saved more than $20,000 when compared to a fixed rate mortgage of equivilent terms.
The overwhelming point I am trying to make is that VARIABLE RATE MORTGAGES WILL BENEFIT FROM THIS SET OF INTEREST RATE HIKES. These hikes are welcomed in order to control inflation, keep growth consistent, and avoid the meltdowns we saw in 2007 and the extreme inflation we had in the 1980s. The Prime rate will go up in the next year, but you can be assured that once the inflationary pressures subside, The Bank of Canada will begin its lowering process to keep growth stimulated at a consistent pace too! Variable rate mortgage customers should keep their rate, raise their payment as if they did lock in and enjoy the long term savings!
Thanks for reading!
Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671