Yesterday, the Bank of Canada cut its key interest rate another 0.25%, down to a record low of 0.25%. All the major banks followed suit and lowered their prime rate by 0.25% as well. Effective today, the banks now have a prime rate of 2.25%.
If you have a mortgage at Prime -0.75% then you are only paying 1.5% interest on your mortgage. Unfortunately the banks are no longer offering a discount from prime on new mortgages, even worse, they charge a premium over prime. Variable rate mortgages are currently available at Prime +0.80%, as of today that is an interest rate of 3.05%.
One of the interesting quotes from the BOC’s statment is that “the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010″.
So does this mean that you should choose a variable mortgage and wait at least a year to lock it in? I still think that you might be better off to go with a fixed rate mortgage. While the prime rate may stay the same until June 2010, that doesn’t mean the fixed rate will still be around 4% one year from now. By the time you go to change to a fixed rate, it may have already increased.
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Having the interest rate lowered another 2.5% can be a good thing for mortgage owners as they have less to pay on their mortgage but it can seem a bit disheartening as anytime it could go shooting back up so try and make the most of the money saved.
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