Homeowners with a variable rate mortgage may be considering refinancing now that a further Bank of Canada rate hike has triggered major banks to raise prime rates to 3%. The move by the Bank of Canada may signal the end to the era of historically low interest rates. The Financial Post reports that the September 8 rate hike has increased the odds amongst some traders of a further rate hike in 2010. (The Bank of Canada’s next date for re-examining its lending rates is October 19th.)
Paul Vieira of the Financial Post reports that following the Bank of Canada’s announcement, “market watchers said traders increased the odds of another rate hike” before year’s end. Other traders, according to Mr. Vieira, “suggest a long pause could be in store” before the central bank again hikes rates.
Interest rate bulls focused on the last line of the Bank of Canada’s rates announcement, which noted further reductions in monetary stimulus (i.e., a further rate hike) would need to be “carefully considered in light of the unusual uncertainty surrounding the outlook” of the Canadian economy. Interest rate bears, on the other hand, point to “credit conditions that have eased further in recent weeks due to sharp declines in bond yields,” according to Mr. Vieira.
Mr. Vieira points out that banks price their loans and mortgages “based on [the] yields for relatively safe government-issued debt.” With falling bond yields and greater credit liquidity, the Bank of Canada may be further tempted to raise rates in October to stave off any latent inflationary pressures.
Homeowners considering refinancing a variable rate mortgage may want to lock in mortgage rates that remain low for now, as the medium to long-term outlook seems to point to higher overall rates.
