Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Overnight Rate outlook SOURCE, BMO, TD, RBC, CIBC, Scotia

The weakest growth potential in the Canadian financial landscape belongs to Canadian overnight interest rate. Bank of Canada chief Stephen Poloz thinks that inflation rate is not going to show any sign of life this year. For inflation rate to return to its healthy self may take another couple of years. At least that’s what the Bank of Canada boss thinks

As we all know – overnight target rate set by Bank of Canada depends on inflation rate. Since inflation rate is not going to move any-time soon, Bank of Canada has no incentive to push target rate higher than where it is now.

In recent months Canadian dollar has been showing unprecedented (in near term) weakness. That should contribute to inflationary pressure. But these financial movements take time. Nothing is going to change overnight, therefore we have to wait.

There is no significant job growth, housing market is in an on-again off-again relationship with housing starts and house prices. Overall the indicators are not very positive.

Our society and financial system all got used to the low interest rate. Politicians, policy makers are all part of this system. In order to break out of this stagnation – it will take more than some frisky push of inflationary pressure.

Couple of years ago every financial organizations were predicting that 2014 will be the year of interest rate hike. Now, the overall consensus is – that it will be 2016 before something serious starts to happen.

As a borrower what does this news mean to you?

If you are not in a variable rate mortgage then it is not likely to affect your bottom line right now. By if you’re in a variable rate mortgage then it will help you to understand and prepare for any future risk.

According to most of the banks – the rate (Bank of Canada overnight lending rate) will start to rise by the middle of 2015. So if you’re running a stress test on your mortgage payment then it will be beneficial for you to assume a 1% hike in prime rate by first quarter of 2015. It may sound overly conservative but it doesn’t hurt to be safe than sorry.

So the moral of the story is to get ready and stay prepared for any interest rate hike by 2015. For now it is all quiet out there. And remember quiet time does not guarantee that the interest rate is not going to rise till it gets noisy. Actually it can rise any-time or it can also fall.

Whatever happens. If you are a mortgage holder then you have to keep paying interest may be a bit higher or may be a bit lower.