The forecast for variable mortgage rates remains flat, just as it was last month, and the month before that. Variable mortgage rates float with a lender’s prime rate of interest, which is tied directly to the overnight rate set by the Bank of Canada. In a speech today in Waterloo, Mark Carney, the Governor of the Bank of Canada said “All indicators point to inflation expectations remaining well anchored”. With inflation in check there is little pressure to increase the overnight rate.
In fact, the predominant pressure is to keep the overnight rate, and in turn prime interest rate, right where it is at 3.0%. Increasing rates now would attract more foreign investment cranking up our already red hot dollar. Although, a strong dollar makes for better vacations and brings down the cost of imported goods, it’s a major hindrance to Canadian exporters and manufacturers. Our manufacturing sector is already very weak and its health is important to the overall health of our economy.
On the other hand, downward pressure on variable rates is almost non-existent. Although the prime rate of interest is 3.0%, the overnight rate is only 1.0%. It’s up substantially from its 0.25% low point during the heart of the recession, but it’s still ridiculously below normal levels and in artificial stimulus territory.
For the foreseeable future, which is the next 9 to 12 months, you can count on the variable mortgage rate to remain where it is.