The Bank of Canada cut its interest rate 0.25% to 2.25% today. In January, 2008 when David Dodge headed the Bank, the interest rate was 4.5%. Mark Carney, who took over as Governor in February, intends to stimulate the Canadian economy by dropping interest, but does not want to panic stock markets by cutting a full percentage in one month.
So far this year, Mr. Carney has dropped interest rates 0.5% in March and April, and on October 8. One U.S. dollar equals $1.20 Canadian today, so the low exchange rate will have the stimulating effect that a 0.5% interest rate would have made. Inflation is at 3.2%, and no big increases are expected in 2009.
How does all this maneuvering impact you, today’s home buyer? The average 5-year closed mortgage rate has dropped to 6.49% at smaller lenders. However, the Big 5 banks (Scotiabank, Bank of Montreal, TD Canada Trust, Royal Bank, and Canadian Imperial Bank of Commerce) are still charging a 5-yr. closed rate of 7.20%, which is unchanged from last week, and more than 8% for a 6-mo. open mortgage.
Qualified applicants can still obtain a 5-year closed mortgage rate of 5.25% at Comtech Credit Union, a 6-mo. open of 5.90% at MRS Trust, and a variable rate of only 4% at First Ontario Credit Union. Chances are you already bank with one of the Big 5 banks, and you may be tempted to “put all your eggs in one basket” when it comes to your new mortgage. However, because of the huge discrepancies between small lenders and the Big 5 this week, mortgage shopping through a broker can save you many thousands of dollars.
