Quite expectedly (most economists were predicting this), The Bank of Canada has again raised their rate by 0.25%. Due to improved personal and corporate spending in the previous quarters and forseeable future, justifies for the increase at this time. However, the Bank of Canada suggests that this could be the last one we will see for some time and going forward they will take a wait-and-see approach regarding any further interest rate changes.
A big topic of discussion with many of our existing and new clients has been whether or not to choose a fixed rate product or a variable rate one. This is not an easy decision to make as one needs to address not only their own personal situation but their fortitude to accept further future rate increases (if and when they do occur). A number of financial institutions are now offering a 5 year fixed rate of 3.89%, and the odd one at 3.64% with some conditions. However, even with today’s increase, the prime lending rate will now be at just 3.0% and we do have lenders offering a rate of Prime minus 0.65% which makes this rate at 2.35%. That is still more than one full percentage point from locking in for the next 5 years.
So, if you are of the belief that rates should stay relatively low for the next while and you can withstand the possibility of some further rate hikes, then choosing a variable rate product may well suit you.
If you are currently in an interest-only product you may well want to consider your alternatives, as most lenders charge a rate of Prime plus 1.0%. So, no matter what the prime lending rate does, you are always paying 1.65% more than the variable rate option. That works out to be $1,650 of savings per year per $100,000 borrowed! Call me for more details and I’ll show you how easy this is to do.