Tomasz  Witek

Tomasz Witek

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Right at Home Realty Inc.

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At The Latest Meeting in January 2018 Bank of Canada Increased Your Variable Mortgages

Bad News For Homeowners Again!

At the latest meeting on January 17, 2018, Bank of Canada increased its trend-setting overnight lending rate by a quarter point (increase of 0.25%) to 1.25%.

The 0.25% increase, in simple terms means that for every $100,000 of your mortgage, if you have a variable mortgage, you will pay $250 per year in additional interest.

This is of course bad news for fixed mortgages as well, since the 5 year-fixed mortgages (all terms really) tend to increase in line with the Bank of Canada overnight lending rate increases.

The Bank expects economic growth to slow from this point forward. Additionally, the Bank highlighted a number of reasons why the timing of future rate hikes this year and next is by no means set in stone. Of course, they will not openly tell you whether they will increase the lending rate during the next meeting to avoid further speculation.

Why would they not increase rates further? 

Point 1. Uncertainty surrounding the renegotiation of NAFTA, which can negatively impact business investment into Canada, especially foreign investment coming form our biggest trading partner, United States of America. We stipulate that if the Canadian government fails to favourably renegotaiate NAFTA, this will impact Canadian economy, but it would also mean that most likely Bank of Canada would lower the overnight lending rate or keep it at its current level. So, are they jacking it up in January, in order to decrease it back down again when NAFTA fails? Let me know your thoughts. 

Point 2. "The Bank also suggested that strong demand could mean the economy has more potential for growth than previously thought. If so, stronger economic growth would put less upward pressure on inflation and lessen the need by the Bank to raise interest rates to quell inflation." Yet, again, you are having indicators that show that you should not increase the rates, yet for whatever reason you continue doing so! Again, let me know thy thoughts.

Point 3: "Despite strong job growth, wage growth remains tepid. This also lowers upward pressure on consumer price inflation and reduces the Bank’s need to raise interest to keep inflation to its 2% target." If this is the case why do you continue to raise the rates and on the first meeting of 2018? 

Point 4. "The Bank also said it expects residential investment to be roughly flat over the next two years due to higher interest rates and tightened mortgage regulations that came into effect on January 1." GREAT STOP RAISING OUR MORGAGE COSTS!

The Bank again cautioned that future interest rate increases will depend on incoming economic data and the outcome of NAFTA renegotiations.

"As of January 17, 2018, the benchmark five-year lending rate stood at 5.14%, up from 4.99% at the time of the Bank’s December 6, 2017 announcement. As of January 1, 2018, all mortgages must qualify at, at a minimum, the benchmark five-year lending rate."

The next interest rate announcement will be on March 7, 2018. 

Source: Bank of Canada

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