The age-old rate debate. In this blog post, we talk a bit more about whether variable rate mortgages are better than fixed.
Rate Update in January?
“Look at me
And what do you see
Slowing of job creation
Could it be?
We might foresee!
The global economy affecting the nation”
“Economists predict a change in overnight rate”
“But, we’re not ready just right this sec!
We must hold the overnight and monitor with a constant check”
“No, no, no, nooooo
No, no, no
Stick to the stuff you know
If you wanna be cool
Follow one simple rule
Don’t mess with the flow, no no
Stick to the status quo”
Was there a rate update in January?
It may seem like a silly song from an outdated movie, but it has quite a powerful meaning behind it. We see a typical high school scene where everyone sticks to their social groups and the norm of those different groups. The Brainiacs constantly studying with their heads in a book, the jocks passing a football across the table, and the skaters doing tricks off the benches. But, from each of those groups, a soul pipes up and expresses to their peers their true passion. A Brainiac loving hip hop and a jock loving to bake? Their peers are uncomfortable with them straying from the social norm of their group.
Being a follower and following the status quo of everyone around them can hinder their dreams for the future in what they want to do. To see the change that we want to see, we sometimes have to stray from the status quo and what everyone is doing around us.
Was there a change?
On January 22, we saw the Bank of Canada hold the overnight rate at 1.75 percent. There was some speculation going into the Bank of Canada rate and market update. Economists were split on whether the Bank would hold the overnight rate or change it. Some expected the Bank to change the overnight rate following the global economy and other major economies around the globe. Others predicted that the Bank would leave the overnight rate the same since our economy is currently holding in the midst of the global economy softening.
Stick to the Status Quo?
Our “status quo” here may have been to follow the rest of the global economy and lower our overnight lending rate. We’ve seen countries like the United States lower their lending rate multiple times over the past year, which would usually spark a change in ours to follow. But, with the Canadian economy holding, Canadians are staying optimistic and don’t see a need to change just yet. We haven’t seen a major boom in the economy, nor have we seen a bust. We’ve stayed consistent, which means that we don’t necessarily have to change anything. The Bank of Canada is continuing to assess developments in consumer spending, business investment, and the housing market. This will determine the future of the overnight rate and Canadian Economy, even though there was no rate update in January.
What should you do?
The Bank of Canada stated that there are signs that the global economy is stabilizing. The revised North American trade pact is closer to ratification and the US and China have signed an initial deal on tariffs. There is a prediction that the suffocation we are currently seeing on growth with dissolve in the next couple of years.
For favorable variable-rate mortgages, it is wise to hold where you are. Variable-rate mortgages that are prime minus 100, or 2.95%, are great. Even if you have prime minus 90, 80, 70, or 60 it is good to hold. Variable-rate mortgages historically do better than fixed-rate mortgages and borrowers will often save money. However, if you know you’ll lose sleep at night over a variable rate, or you have a less favorable variable rate mortgage, it may be time to lock into a fixed. A less favorable variable rate mortgage could be something like prime minus 25 or prime.
Mixed opinions on what comes next…
Economists continue to be on the fence about what we will see in the future. We could see an increase, or we could see a decrease. Only time will tell what the economy will do and how the Bank of Canada will react. We can be sure that Canada has not stuck to the status quo and continue to be optimistic about our economy. We’ve seen the Bank of Canada hold the overnight rate in the midst of economies around the globe drop their rates lower and lower in an attempt to combat a softening economy. Our recommendation is to hang on if you have a favorable variable rate of prime minus 50/60 or better.
Even though we didn’t see a rate update in January, there may be changes coming. If you have a mortgage that you aren’t satisfied with, or you’re going to lose sleep over, come and talk to our professionals at Clinton Wilkins Mortgage Team. We will be happy to take a look at your situation! Give us a call at 902-482-2770, or get in touch with us here!