Bank of Canada Rate Announcement Dec 7, 2016
Fixed rates have started to increase but over the last 5 years we have seen this story before. Will this time be any different? The answer may be yes because of 2 recent changes, Donald Trump was elected and the government established new stress test rules for Canadians qualifying for mortgages. The Bank of Canada is expecting the housing market to contribute a lot less ($5 billion by my calculations in 2017) to the national GDP. While the housing market will contribute less, the infrastructure spending by the government and increased exports will make up for the dip in the housing market. While this is the theory, there is still a lot of uncertainty about the long term prospects for Canada. For this reason, the prime rates are remaining the same and the long term prospects into 2017 looks like a period of lower rates.
Interest Rate Timing or Interest Rate Strategy?
If you are looking to time your conversion to a new 5 year fixed rate, the rates are still lower than we have seen in years. Is now the right time to do this, some so called experts are saying yes. Here is why I don’t think this is a good idea. When trying to time the market, very few are right, the best strategy to long term investing is a buy and hold strategy. This is true in the mortgage world as well. If you can extend 2 more years of lower rates through a variable rate mortgage you can reduce your interest costs in the long run. In periods where fixed rates will trend to increase rapidly in the short and long term, this may be the time to consider locking in for a longer term, we are not there yet. This is the first small increase we have seen, don’t panic, my advice is to wait and see what the next 6 months will hold for us, there is still a lot of uncertainty in the world.
Here is a link to today’s announcement by the Bank of Canada
The next Bank of Canada is January 18, 2017.