Concerns over an economic slowdown in the U.S. and a reluctance to see Canadian monetary policy diverge too widely from that of the U.S. Federal Reserve are key factors that will likely see the Bank of Canada pause in its course of raising its market-setting overnight lending rate. The Bank of Canada’s lending rate tends to set the bar for the prime rates offered by major banks on a variety of home mortgage products, most particularly fixed rate mortgages.
Bloomberg News reports that “the probability for a quarter percentage point increase stood at 9 percent late last week, down from about 40 percent a month ago, according to Bank of Nova Scotia data derived from overnight index swaps.”
“While Carney is alone among Group of Seven central bankers to raise interest rates this year and has raised the bank’s key lending rate three times since June,” Bloombergs notes, “he has signaled ‘caution’ in the face of a more gradual recovery in Canada.”
While a pause in the Bank of Canada’s course of raising interest rates off historic lows allows a window of opportunity for home purchasers and current homeowners who need to renew (or wish to refinance an existing home mortgage) at historically low mortgage rates, this window will begin to close as we move forward into 2011. Bloombergs reports that “chances of interest rates rising to 1.25 percent by the December rate announcement are 22 percent, 45 percent by January and 65 percent in March, according to Scotia Capital’s data, [while] the probability of a rate increase by July is 100 percent.”
While the mortgage products of major banks is closely tied to the Bank of Canada’s overnight rate – the rate that banks effectively make short term loans to each other under the auspices of the Bank of Canada – a well-resourced mortgage broker with a wide network of non-bank and private lenders will most often be able to procure competitive mortgage terms with lower interest rates on most home mortgage products.
