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Clinton chats with News 95.7 host, Todd Veinotte about the Bank of Canada announcement to hold the key overnight rate. Clinton and Todd discuss how this is good news for variable rate mortgages.
Bank of Canada Announcement – July 14, 2021 as heard on News 95.7
Don’t feel like watching the video? Check out the transcript below.
“Cutting its expectations for economic growth this year”
Todd Veinotte: [00:00:00:06] Joining us is Clinton Wilkins, our mortgage guru, and we’re going to talk about the Bank of Canada is doing, or not doing. Clinton good afternoon.
Clinton Wilkins: [00:00:07:00] Good afternoon, Todd. How are you?
Todd Veinotte: [00:00:08:15] I’m well, you?
Clinton Wilkins: [00:00:09:26] I’m doing just great. It’s Wednesday, the sun’s shining. We’re in the middle of summer. I think everyone’s feeling pretty good here in Halifax and probably across Nova Scotia with the further reopening today.
Todd Veinotte: [00:00:24:21] You got it. You got it. Okay, so the Bank of Canada is cutting its expectations for economic growth this year. It keeps its key interest rate target on hold at 0.25 per cent. This is kind of the same thing, nothing’s changed. What does this mean for people listening? What do you want to tell people?
Clinton Wilkins: [00:00:43:08] Well, it’s good for everyone in a variable rate mortgage, obviously, or if you have a secured line of credit, like a home equity line of credit, it’s great for everyone who has a product that’s tied on to the prime rate.
Holding the key rate it’s going to happen for a while. And I think maybe the last announcement, some economists were projecting that maybe it would start creeping up, you know, mid to late next year. But there are some economists that are even coming out today stating that maybe the Bank of Canada will maintain that key rate low for a long, long time through the rebuilding that’s going to be happening in the Canadian economy.
Inflation similar to what it was in 2011
The one thing that is notable is the inflation is basically at the levels that it was pre-pandemic and even at the levels that it was back in May of 2011. So we’re looking at basically inflation levels that we saw 10 years ago. So I think that’s one thing to note.
The government, you know, the one lever that they have to reduce inflation in Canada is to increase the key overnight rate. So I think that’s something that we’re certainly going to be following closely is the inflation. And obviously that impacts Canadians almost silently. And obviously it impacts so many different things.
But with the key overnight rate, really, we are thinking and the majority of economists are thinking it’s going to stay low for quite some time.
How long will we have these low rates?
Todd Veinotte: [00:02:08:21] Yeah, when you say quite some time, you mean months, years, what do you mean? What’s your time frame?
Clinton Wilkins: [00:02:13:05] I think I think likely it’s going to be years. We may see some slow increases mid to late next year to stay some of that inflation, depending on what happens. I think there’s still a lot of uncertainty.
You know, we’re just getting in the clear here with we’re reopening in Canada and I think that there’s going to be quite some rebuilding to do before they’re going to want to slow that economy. So I think it’s a wait and see. We are cautiously optimistic.
Good news for variable rate mortgages
And I can tell you, Todd, majority of the borrowers that we are doing mortgages for today are going with a variable rate. In days gone by, about 60 per cent of borrowers would choose a fixed rate product because they wanted that security. But obviously, we’re in a very strange time with COVID. And I think it’s the same thing with mortgage lending and real estate, you know, and that’s why more and more borrowers are doing a variable rate.
The rates are very low. So on a high ratio insured mortgage, you know, from the Canadian Mortgage and Housing Corp., if anybody’s buying a home and putting down less than 20 per cent, they need that insurance. And a really good variable rate today is, you know, in the 1.35 per cent range.
Benefits of a variable rate mortgage
So a lot of borrowers are choosing to go with the variable rate because it’s much lower today than where the fixed rates are. And it gives a lot more flexibility for borrowers. There’s a lot changing in people’s lives. The way we’re living is changing, Todd. And with a variable rate product, you can break the term at any time with only three months interest.
But the other really great benefit is you can always convert it into a fix. So if we’re in a position down the road and I mean eventually these rates are going to go up, we can always convert from a variable into a fixed. And, you know, if borrowers stay with their same lender while they’re doing the conversion, they can convert into the fixed with no cost. So I think that’s good news, for sure.
Todd Veinotte: [00:04:03:21] Great stuff is always Clinton. Thanks for your insight. We’ll talk again.
Clinton Wilkins: [00:04:07:09] Thanks, Todd. We’ll talk to you soon.
Todd Veinotte: [00:04:08:19] Alright, take care. Clinton Wilkins, our mortgage guru, mortgage broker, he’s a specialist. And again, the Bank of Canada keeping that interest rate stable. And Clinton suggests that’s the way it’s going to be for a very, very long time.
If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.