Canadians refinancing their home mortgage or consolidating debt under a secured home equity line of credit should consider doing so in the next few months or so, to assure they can take advantage of interest and mortgage rates that remain far below historical norms – even though Canadian rates have risen from the lowest lows seen in the first quarter of 2010.
It is highly unlikely that Canadian mortgage rates will be affected any time soon by changes in the Bank of Canada’s overnight lending rate – at least into mid-2011, according to a client note released by TD Economics, and reported in the Financial Post. The economic forecast from TD is that “[t]he Bank of Canada won’t alter its overnight lending rate until at least the middle of 2011,” a revision to its earlier projection of “a rate hike much earlier in the first half of next year.”
The Bank of Canada lending rate – essentially, the rate at which major banks and financial institutions make very short-term loans to each other – affects a range of home mortgage and loan products, as a change in the Bank of Canada rate normally resets the prime rate offered by major banks.
The author of TD’s client note observes that “Canada’s less severe recession and stronger recovery has helped reduce deflationary risks and therefore, has all but eliminated the need for the Canadians considering country’s central bank to ease its monetary policy further as is being done south of the border.” Currently, the Bank of Canada’s overnight lending rate is 1.0 percent, with the next rate review being scheduled for December 7th.
Meanwhile, as the economy continues to recover, inflation remains well within the Bank of Canada’s tolerances and below its two percent target. Coupled with rising yields on longer-dated bonds, minimal inflation (and concern over possible U.S. deflation) minimizes the possibility of rate cuts. Thus, there is a window stretching into 2011 for refinancing an existing home mortgage at relatively low rate, or – particularly, post-holiday – for debt consolidation under a secured home equity line of credit at very favourable rates.
