Introducing Integrated Mortgage Planners’ New Monday Morning Interest Rate Update (April 4, 2011)April 4, 2011
Variable-Rate Mortgages Still Look Better By ComparisonApril 18, 2011
The European Central Bank boosted its benchmark rate by .25% on Thursday, to mixed reviews. While Germany’s economic growth warranted the increase, higher borrowing costs will heap even more suffering on the economies of Ireland, Greece, Spain and Portugal (which requested a bailout last week). The March job reports for Canada and the U.S. were mixed – the headline numbers were disappointing but analysts found bits and pieces they liked.
Canadian fixed-mortgage rates increased early last week as predicted, jumping by between 30 and 35 basis points (which was the biggest move we have seen in quite a while). The five-year Government of Canada bond yield dropped early last week before resuming its upward climb and closing at 2.85% on Friday (an eleven-month high).
Meanwhile, with the spread between five-year fixed and five-year variable rates now at around 2%, variable rates look like a bargain. While there is vigorous debate about where variable rates are headed in the medium/long term, with inflation well under control, the short-term picture is reassuring. (Core inflation dropped to .9% in February – the lowest it has been since the measure was introduced in 1984, and well below the Bank of Canada’s target of 2%.) The Bank of Canada meets tomorrow and they are expected to leave the overnight rate unchanged.
The bottom line: If you’ve got a reasonable amount of equity in your home and can live with interest rate volatility, take a variable rate, set your mortgage payment at the fixed rate, and make hay while the sun shines!