I just received an e-mail from a client asking the following question... "Given today's large Bank of Canada interest rate cut of .75%,should we be thinking about locking in our mortgage?"
I think a lot of people might be wondering the same thing so I thought I'd share my answer.
"Long term fixed rate mortgages ie. 3-5 year terms, are currently around the 5% mark. Fixed rates do not move exactly in tandem with the Bank of Canada overnight rate. When the Bank of Canada reduces the overnight rate as they did today, the banks normally follow by reducing their prime lending rate. After the Bank of Canada annoucement today, the banks dropped their prime lending rate almost immediately by .50% from 4% to 3.5%.
Variable rate mortgages are tied to the prime lending rate so if you have a variable rate mortgage you benefit directly the rate cuts. For example, if your rate is based on the prime rate less .60% (in the last few years many people took out mortgages rates below prime)then your current rate would be 2.9% which is a great rate. The premium you would have to pay to lock into a long term fixed rate of around 5% is pretty steep, therefore I would recommend you enjoy the current low rate for while".
Do you need help with your mortgage? Give me a call 416 876 2031.
