Stephen Poloz announces that the rate will remain at 0.5%
Several factors could eventually lead to an increase in borrowing charges
By
Mark Schadenberg
Since
it’s safe to say Gary Bettman is the top economic person in pro hockey circles,
then it can also be said Stephen Poloz is the most important individual in
Canada’s economy.
Interest
rates are defined by the Bank Of Canada and its governor Stephen Poloz is the
economic brain trust’s authority. On Tuesday, it was announced that the Bank Of
Canada lending rate would remain unchanged at 0.50%. That number has been
unchanged since last July, and obviously banks base their mortgage rates on
today’s percentage indicated by the Bank Of Canada, but also on the future
trends of attempting to forecast the money market two years and five years down
the road.
The
stability in the interest rate is great news for anyone borrowing money, but
not so good news for people looking for ultra safe places to save money.
With
the Canadian dollar faltering around 74 - 75 cents, is it safe to say the Bank
Of Canada will not lower the interest rate in the very near future. The dollar
versus the U.S. greenback is so important because the vast majority of our
nation’s exports are shipped to the U.S.
Stephen Poloz
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Bank
Of Canada statement:
An assessment of the impact of the upcoming federal budget’s
fiscal measures will be incorporated into the Bank’s April projection. All
things considered, the risks to the profile for inflation are roughly balanced.
Meanwhile, financial vulnerabilities continue to edge higher, in part due to
regional shifts in activity associated with the structural adjustment underway
in Canada’s economy. The Bank’s Governing Council judges that the overall
balance of risks remains within the zone for which the current stance of
monetary policy is appropriate, and the target for the overnight rate remains
at 1/2 per cent.
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There
is a federal budget to be published by Parliament Hill on March 22, so it’s
unknown if the next rate announcement on April 13 could see an alteration based
on economic indicators and stimulating spending, and overall planned deficit
levels. New spending could be projects surrounding the Canada 150 celebrations of 2017.
The
worldwide price of crude oil is also a factor in the overall health of our nation’s
economy and any expectation for growth.
The
Globe And Mail piece below notes that the fourth quarter results of the Gross
Domestic Product were higher than earlier predicted results, and that inflation
levels are at or about guesstimates.
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From
The Globe And Mail story:
“The Bank of Canada tried to say as little as possible today
as it waits to see what stimulus the federal budget delivers,” CIBC World
Markets said in a research note.
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A
quick look at amortization charts and interest rates proves that with low
interest rates it’s much easier to carry large amounts of debt in total
monetary value
Interest
rate and monthly payments on a $200,000 mortgage on a 5-year fixed rate based
on a 25-year amortization.
3.0 $946.00
4.0 $1052.00
5.0 $1,163.00
6.0 $1,280.00
The
reverse of this mathematics would indicate that if your lender suggested you
could afford monthly payments of $1,163 based on both your total debt service
ratio and gross debt ratio, you could afford payments on a $200,000 mortgage,
but the answer would switch to ‘No’ if the best interest rate you could
negotiate was 6.0%.
See
calculator at: www.canadamortgage.com
It’s
always a learning experience to delve into any economic announcement, but as a
Realtor, it’s the outlook on interest rates which is always most interesting as
some areas of the economy may require stimulus, while real estate sectors in
the Vancouver and Toronto regions also need to be tempered or at least watched
closely.
If
you’re currently in the market for a mortgage, including re-financing your home
as maybe your current mortgage is due for renewal, contact me for a list of
names of people to contact. Keep in mind, you should (must) pre-qualify
yourself before house hunting, but the additional reminder is that all lending
institutions MUST qualify you based on the current 5-year fixed rate.
By
the way, cash back mortgages are still attainable, but the caveat still
continues that your interest rate will be higher.
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Christopher Ragan - associate professor of
economics at McGill University in Montreal and a research fellow at the C.D.
Howe Institute in Toronto. As published in The Globe And Mail. Full story below
For the
six years after 2008, many Canadians recognized the aggressive actions taken by
the Bank of Canada to stimulate our slumping economy. With the dramatic decline
in the world price of oil over the past 18 months, many seem to expect equally
aggressive actions. But they shouldn’t – instead, they need to recognize the
genuine limitations of monetary policy.
Let’s
begin with what monetary policy can do very well. When the Bank of Canada
expands or contracts its balance sheet, it exerts a powerful influence on
market interest rates, ranging from the overnight interest rate to yields on
longer-term bonds. Such movements in market interest rates, which affect all
regions and sectors, lead to changes in aggregate demand that, in turn, drive
movements in real GDP.
When
Canadian households are pessimistic about the future and reluctant to spend,
lower interest rates on lines of credit can lead them to increase their
spending, and lower mortgage rates can induce them to purchase new homes.
Similarly, when Canadian firms are reluctant to expand their operations because
they lack confidence about the future, lower interest rates can induce them to
make new investments.
These are exactly the conditions we faced between 2008 and
2014. The global financial crisis led to a widespread and long-lasting collapse
in confidence, and the bank responded appropriately with significant and
sustained interest-rate reductions. . . .
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BANK
OF MONTREAL
As
the average Canadian treads water to pay mortgage payments and save for
retirement years, it’s always interesting to read about the compensation
received by some high-ranking corporate folks, including the story about the
coins collected by David McKay to operate the Bank Of Montreal as CEO. Some of these
pay packages are more than just excessive – likely in the range of 10 times
more than what a person should be able to earn.
Read
to story linked below, but McKay earned more than $10 million in fiscal year
2015. McKay – as the story points out – played a significant role in the bank
Of Montreal purchasing the U.S.-based financial institution called City
National Corporation.
LINKS:
OPINION COLUMNS
RELATED STORY:
Mark Schadenberg, Sales Representative
Senior Real Estate Specialist (SRES designation)
Royal LePage Triland Realty Brokerage
757 Dundas St, Woodstock
(519) 537-1553, cell or text
Email: mschadenberg@rogers.com
Twitter: markroyallepage
Facebook: Mark Schadenberg, Royal LePage Triland
Discussion . . . Direction . . . Determination . . .
Destination
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