Variable Mortgage Rate Forecast – April 2013

The Bank of Canada (BOC) maintained it’s target for the overnight rate at 1% this morning.  The net result is that there is no change to the prime rate of interest until their next announcement date which is scheduled for May 29th.  This is good news for variable mortgage rate holders and for those with home equity lines of credit.  Equally important as today’s interest rate decision is the language used by the Bank of Canada to signal future changes.

The most telling statement from the BOC is as follows:

“…, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2 per cent inflation target”

By considerable monetary policy stimulus the BOC means ultra low interest rates.  “A period of time” is intentionally vague as the BOC themselves don’t know how long, but they do know it won’t be anytime soon.  Practical experience tells me this means at least 6 months.  “Some modest withdrawal” is somewhat surprising, but very comforting for homeowners with variable mortgage rates.  Historically we’ve seen variable mortgage rates shoot up following a period of economic depression leaving variable mortgage rate holders in a bit of a pickle.  Knowing that mortgage rate increases were the trigger that led to the US housing meltdown, the BOC will be cautious raising variable mortgage rates.

The forecast for variable mortgage rates for the remainder of 2013 is flat.  If you have the option of a variable mortgage rate that is considerably lower than its fixed mortgage rate counterpart then you’ll do well to choose variable.




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