Mortgage Rates Expected to Remain Steady Despite Recent Spree of Hikes, CBC News

This article appeared on the CBC News website on January 20th, 2016 and was written by Sheena Goodyear.

Canada Flag Real Estate Mortgage Rates InfoDespite a topsy-turvy mortgage landscape that has seen rates go up unexpectedly, don’t expect your monthly payments to skyrocket any time soon, economists say.

“I think that mortgage rates will remain relatively stable,” CIBC deputy chief economist Benamin Tal told CBC News. “I just don’t see anything that will send them up.”

Mortgage rates have been creeping up over the last few months— a fact that may have many homeowners scratching their heads.

Usually a turbulent economy, like the one Canada is currently facing, with oil below $30 US a barrel and the loonie lower than 70 cents US, would be accompanied by a drop in mortgage costs, especially fixed rates.

That’s because fixed mortgages are tied directly to government bond yields, which are at an all-time low as risk-wary investors steer clear of the stock market.

Still, all the major banks have announced mortgage-rate increases since December.

CIBC increased its three-year fixed rate by 10 basis points to 2.59 per cent. RBC upped its special offer on a five-year fixed mortgage by one-tenth of a point to 3.04 per cent. TD Bank increased its one-year and four-year closed special rates by one-tenth of a point each. Scotiabank increased its variable rate by 10 basis points.

Government regulations and global forces

Robert McLister, a mortgage planner at intelliMortgage and the founder of, told Canadian Press the hikes stem partly from new government regulations designed to reduce risk in the country’s housing industry, including plans to force the banks to have more money set aside in case the mortgage loans on their books go bad.

“It’s going to be more expensive for banks to hold mortgages,” McLister said. “They have to put aside more capital and when you put aside more capital, then you can’t do other things with it. And that costs you money, so that gets baked into pricing.”​

But it’s more complicated than that, said Tal. In order to understand Canadian mortgage rates, you have to look at the global picture.

“Given the uncertainty and given the fact that risk profiles are rising globally, I think that the Canadian banks have to pay more to fund themselves,” he said.

Still, there’s no reason for homeowners and would-be homeowners to fret over modest hikes to already low rates, John Andrew, a real-estate professor from Queen’s University in Kingston, Ont., told CBC News.

“I think the rise we’ve seen in mortgage rates isn’t really very significant,” he said.

Bank of Canada holds key rate steady

Meanwhile, the prime rate — the interest rate commercial banks charge their most credit-worthy customers — is unlikely to change substantially any time soon after the Bank of Canada announced Wednesday it would leave its benchmark overnight rate unchanged at 0.5 per cent.

Changes to the overnight rate — the interest rate at which big banks borrow and lend — have traditionally had major implications for Canadian mortgages, as the big commercial banks would follow in lockstep with changes to their prime rate.

But even if the Bank of Canada had announced a rate change on Wednesday, the impact on mortgages likely would have been minimal. The central bank’s power to influence the housing market has dwindled in recent years, economists say.

When the Bank of Canada slashed the overnight rate by 0.25 per cent a year ago, commercial banks only cut their prime rate by 0.15 per cent.

“That’s maybe something the [Bank of Canada] should look at, because the ability of the bank to really impact market rates and activity is very limited,” Tal said.

Rates will go up eventually

Despite the steady forecast for the next year or two, Andrew advises new homeowners or those looking to renew their mortgages to choose a fixed, or locked in, rate with regular monthly payments that aren’t tied to the prime.

“I’m a little gun-shy about variable-rate mortgages, just because you’re in a period where mortgage rates are so low and there isn’t a widespread expectation in the market that they’re going to rise dramatically,” he said.

“I’m a big one for certainty, and I think the big uncertainty is rising rates. We know they’re going to rise — we just don’t know when and we don’t know by how much. So do you want to get into a variable situation where you’ve got no control over that?”

Marcus Tzaferis, a mortgage broker with MorCan Direct, disagrees. There are good deals on variable-rate mortgages right now, he said, especially from non-bank lenders that won’t penalize you if decide to lock in.

“I’ve been doing this now for about 15 years — nothing happens all that quickly. This tool of inciting some fear that rates are going to go up — it almost works in the banks’ favour. The banks make more money on the fixed rate,” he said. “I don’t think we’re going to see rates increase any time soon.”

Tal said when it comes to fixed versus variable, it all comes down to the individual. There’s no one-size-fits-all for mortgages. But, he warned, the pendulum will eventually swing back, so it’s best to plan ahead.

“If you’re buying right now, it’s very, very likely that five years from now, when you renew, rates will be notably higher,” he said. “If you cannot finance your mortgage at rates that are one to two per cent higher, then you have to think twice about the type of house that you want to buy.”


Bank of Canada Interest Rate Cut Expectations Tick Higher, Business News Network

Bank of Canada Kamloops Real Estate Mortgage Interest RatesThis article appeared on the Business News Network on January 14th, 2016 and was written by Fergal Smith of Reuters.

Bank of Canada interest rate cut speculation intensified on Tuesday as crude oil prices and the Canadian dollar both weakened to 12-year lows, with traders pricing in a full 25-basis-point easing by mid year.

The Canadian central bank cut rates twice in 2015 as an oil price shock drove the economy into recession in the first half of the year, but has been sidelined since July.

“People are calling for the Bank of Canada to cut rates at the next meeting,” said David Bradley, director of foreign exchange trading at Scotiabank.

The implied probability of a Bank of Canada rate cut at next week’s interest rate announcement has climbed from 22 percent after a speech by Governor Stephen Poloz last week to more than 30 percent, while the market has nearly fully discounted a rate cut in May.

The prospect of easing helped drive the yield on the Canadian government’s two-year bond to a four-month low.

Even so, “the market is underpricing the probability of a rate cut next week,” said Andrew Kelvin, senior rates strategist at TD Securities.

A Jan. 7 speech by Poloz had left investors doubtful he would cut Canada’s benchmark rate this month.

However, the central bank’s quarterly Business Outlook Survey has since found that business sentiment has deteriorated, while investment and hiring intentions have fallen to their lowest levels since 2009.

“It’s clearly going to be a very close call for the Bank of Canada given the financial turmoil we have seen,” said Kelvin.

U.S. crude oil prices have fallen an additional 8 percent this week, dipping below US$30 a barrel. Moreover, Western Canada Select, a blend produced by Canadian oil companies, trades at a greater than $14 discount to U.S. crude oil prices.

“We know falling oil prices have preceded both the last two cuts from the Bank (of Canada),” said Kelvin.

The central bank assumed a $45 price for U.S. crude oil prices when making its latest forecasts for the economy in October.

Speaking on Tuesday, Canadian Finance Minister Bill Morneau acknowledged that the public is concerned about the economy, but declined to indicate whether the government will stick to its budget deficit pledge or boost spending.

“We will be working in our budget to make sure that our initiatives help to grow the economy. We think the initiatives we already outlined are the appropriate initiatives to make a difference,” he said.

CMHC Mortgage Holders Spend 26% of Income on Housing Loan Defaults at Low 0.34%, Showing Strong Ability to Manage Debts

This article appeared on on the 29th of May 2015.

CMHC Canadian Mortgage and Housing CorporationCanadians are showing a strong ability to manage their debts even as housing prices rise, with arrears on CMHC mortgages at a low 0.34 per cent for the first quarter of this year, according to new figures from the federal housing agency.

That means there were 9,572  Canada Mortgage and Housing Corp.-insured mortgages in arrears in the quarter, while it insures a total of 2.8 million mortgages. It had to pay just 588 claims.

The gross debt service ratio for Canadian homeowners – the percentage of housing costs to gross monthly income – sits at 26 per cent for the three months ended March 31.

That’s almost the same as in the first quarter of 2014, but up slightly from 25 per cent in 2013.

The ratios are highest in Alberta, British Columbia and Ontario, where housing prices have been rising rapidly. New homeowners in those provinces are also more likely to need a CMHC mortgage, which is necessary when buyers do not have a 20 per cent down payment.

However, a small proportion of CMHC-insured homeowners – 12.1 per cent – have a gross debt service ratio of more than 35 per cent, meaning more than a third of their monthly income goes to housing costs.

Another 21 per cent of CHMC-insured mortgage holders are juggling housing costs of 30 to 35 per cent of their gross income.

As housing costs rise, more than a quarter of the mortgages insured by CMHC are for over $400,000.

However, the average insured loan amount was $238,630.

In its annual report the federal agency predicts today’s low interest rates will continue to stimulate demand for housing.

It expects mortgage rates will not rise in Canada before the end of 2015.

The report comes after CEO Evan Siddall said CMHC’s share of the mortgage market had dropped from about 90 per cent of new mortgages to about half of new mortgages.

Ottawa had encouraged the agency to reduce exposure to mortgage defaults for the Canadian taxpayer, saying it wanted private insurers to take over the risk.

In its annual report, CMHC said it insured mortgages worth $543 billion in 2014, down 4.1 per cent from 2012, and below the legal limit of $600 billion.


CMHC & Genworth to Increase Mortgage Insurance Premiums

CMHC Canadian Mortgage and Housing CorporationOTTAWA, ONTARIO–(Marketwired – April 2, 2015) – As a result of its annual review of its insurance products and capital requirements, CMHC is increasing its homeowner mortgage loan insurance premiums for homebuyers with less than a 10% down payment. Effective June 1, 2015, the mortgage loan insurance premiums for homebuyers with less than a 10% down payment will increase by approximately 15%.

For the average Canadian homebuyer who has less than a 10% down payment, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on housing markets.

Premiums for homebuyers with a down payment of 10% or more and for CMHC’s portfolio insurance and multi-unit insurance products remain unchanged. The changes do not apply to mortgages currently insured by CMHC.

“CMHC completed a detailed review of its mortgage loan insurance premiums and examined the performance of the various sub-segments of its portfolio,” said Steven Mennill, Senior Vice-President, Insurance. “The premium increase for homebuyers with less than a 10% down payment reflects CMHC’s target capital requirements which were increased in mid-2014.”

CMHC is mandated to operate its mortgage loan insurance business on a commercial basis. The premiums and fees it collects and the investment income it earns cover related claims and other expenses while providing a reasonable rate of return on its capital holding target.

CMHC contributes to the stability of Canada’s housing finance system, including housing markets, by providing qualified Canadians in all parts of the country with access to a range of housing finance options in both good and bad economic times.

Effective June 1st, CMHC Purchase (owner occupied 1 – 4 unit) mortgage loan insurance premiums will be:

Loan-to-Value RatioStandard Premium (Current)Standard Premium (Effective June 1st, 2015)
Up to and including 65%0.60%0.60%
Up to and including 75%0.75%0.75%
Up to and including 80%1.25%1.25%
Up to and including 85%1.80%1.80%
Up to and including 90%2.40%2.40%
Up to and including 95%3.15%3.60%
90.01% to 95% – Non-Traditional Down Payment3.35%3.85%


CMHC reviews its premiums on an annual basis and will announce decisions on premiums following this review.

Canada Mortgage and Housing Corporation (CMHC) has been Canada’s authority on housing for more than 65 years.

CMHC helps Canadians meet their housing needs. As Canada’s authority on housing, we contribute to the stability of the housing market and financial system, provide support for Canadians in housing need, and offer objective housing research and advice to Canadian governments, consumers and the housing industry. Prudent risk management, strong corporate governance and transparency are cornerstones of our operations.

For additional highlights please see the backgrounder info below and visit CMHC’s key fact sheet.


Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.

CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after June 1, 2015. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to June 1, 2015, regardless of the closing date. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.

The increase applies to mortgage loan insurance premiums for residential housing of 1 and 2 units for homebuyers with less than a 10% down payment.

CMHC mortgage loan insurance premium is calculated as a percentage of the loan based on the loan-to-value ratio. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and amortized over the life of the mortgage as part of regular mortgage payments.

CMHC reviews its premiums on an annual basis and has adjusted them several times since being commercialized in 1998. Adjustments have included both increases and decreases to the premiums.

CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system. In August 2014, CMHC increased its capital holding target from 200% to 220% of the minimum OSFI requirements.

In 2014, the average CMHC insured loan at 95% loan-to-value was $252,530. Based on this figure, the higher premium will result in an increase of approximately $5 to the monthly mortgage payment for the average Canadian homebuyer. This is not expected to have a material impact on housing markets.

Link to article.

Genworth Canada To Increase Mortgage Insurance Premium Rates For Some Customers

( – Genworth MI Canada (MIC.TO) Monday said that effective June 1, it would increase its mortgage insurance premium rates for homebuyers with less than a 10 percent down payment by around 15 percent.

A typical first-time homebuyer taking out a 95 percent loan-to-value mortgage of $300 000 will see an increase of approximately $6 in their monthly mortgage payment, based on a 2.79 per cent interest rate and 25-year amortization period.

“This new pricing is reflective of higher capital requirements and supports the long-term health of Canada’s housing finance system,” said Stuart Levings, President and CEO of Genworth Canada.

CREA: Canadian Home Sales Slip Further in January 2015

Ottawa, ON, February 17, 2015 – According to statistics released today by The Canadian Real Estate Association (CREA), national home sales activity was down on a month-over-month basis in January 2015.


– National home sales fell 3.1% from December to January.
– Actual (not seasonally adjusted) activity stood 2.0% below January 2014 levels.
– The number of newly listed homes rose 0.7% from December to January.
– The Canadian housing market remains balanced.
– The MLS® Home Price Index (HPI) rose 5.17% year-over-year in January.
– The national average sale price rose 3.1% on a year-over-year basis in January.

The number of home sales processed through the MLS® Systems of Canadian real estate Boards and Associations fell 3.1 per cent in January 2015 compared to December 2014.

January sales were down from the previous month in about 60 per cent of all local housing markets. On a provincial basis, the monthly decline largely reflected fewer sales in Alberta and Saskatchewan.

Monthly Home Sales CREA January 2015 Chart

Click to enlarge

“As expected, consumer confidence in the Prairies has declined and moved a number of potential homebuyers to the sidelines as a result,” said CREA President Beth Crosbie. “By contrast, housing market trends in the Maritimes are continuing to improve, which underscores the fact that all real estate is local. Nobody knows this better than your local REALTOR®, who remains your best source for information about the housing market where you currently live or might like to in the future.”

Actual (not seasonally adjusted) activity in January stood two per cent below levels reported in the same month last year, marking the first year-over-year decline since April 2014.

“Comparing sales activity for January this year to sales one year earlier, there was a fairly even split between the number of markets where sales were up versus the number of markets where sales were down,” said Gregory Klump, CREA’s Chief Economist. “The decline in national sales largely reflects weakened activity in Calgary and Edmonton. If these two markets are removed from national totals, combined sales activity remained 1.9 per cent above year-ago levels.”

The number of newly listed homes rose 0.7 per cent in January compared to December. New supply climbed higher in just over half of all local markets, led by Edmonton and Greater Toronto. By contrast, Greater Vancouver, Calgary, and Regina posted the largest monthly declines in new listings.

The national sales-to-new listings ratio was 49.7 per cent in January, marking the first time this measure of market balance has dipped below 50 per cent since December 2012.

Aggregate Composite MLS HPI - CREA January 2015

Click to enlarge

A sales-to-new listings ratio between 40 and 60 per cent is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively. The ratio was within this range in more than half of all local markets in January.

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents the number of months it would take to completely liquidate current inventories at the current rate of sales activity.

There were 6.5 months of inventory nationally at the end of January 2015, its highest reading since April 2013. As with the sales-to-new listings ratio, the reading for the number of months of inventory still indicates that the national market remains balanced.

The Aggregate Composite MLS® HPI rose by 5.17 per cent on a year-over-year basis in January. This continues the trend, in place throughout 2014, where year-over-year price gains held steady between five and five-and-a-half per cent.

Year-over-year price growth held steady in January for one-storey single family homes and decelerated for other Aggregate Benchmark housing types tracked by the index.

Two-storey single family homes continued to post the biggest year-over-year price gains (+6.57 per cent), followed closely by townhouse/row units (+5.00 per cent) and one-storey single family homes (+4.61 per cent). Price growth remained comparatively more modest for apartment units (+3.11 per cent).

Price gains varied among housing markets tracked by the index. As in recent months, Calgary (+7.76 per cent), Greater Toronto (+7.47 per cent), and Greater Vancouver (+5.53 per cent) continued to post the biggest year-over-year increases.

That said, while prices in Greater Vancouver and Greater Toronto continue to trend higher, the trend for prices in Calgary has been fairly stable since last summer while year-over-year gains continue to shrink.

In other markets from West to East, prices were up on a year-over-year basis in the Fraser Valley, Victoria, and Vancouver Island, while remaining stable in Saskatoon, Ottawa, and Greater Montreal. By contrast, prices declined on a year-over-year basis in Regina and Greater Moncton.

The MLS® Home Price Index (MLS® HPI) provides a better gauge of price trends than is possible using averages because it is not affected by changes in the mix of sales activity the way that average price is.

The actual (not seasonally adjusted) national average price for homes sold in January 2015 was $401,143. This represents an increase of 3.1 per cent year-over-year and the smallest increase since April 2013.

The national average home price remains skewed by sales activity in Greater Vancouver and Greater Toronto, which are among Canada’s most active and expensive housing markets. Excluding these two markets from the calculation, the average price is a relatively more modest $312,280, which represents a year-over-year decline of three tenths of one per cent.

These two charts came from the Hufington Post on February 17th, 2015.

Change in Avg House Prices Jan 2014-2015

Click to enlarge

Home Sales Jan 2014-2015

Click to enlarge

Link to Huffington Post article.

Canadians Set to Jump on Home Buyer Bandwagon Amid Lower Rates, The Globe and Mail

This article appeared in The Globe and Mail on January 30th, 2015 and was written by Tamsin McMahon.

Canada’s housing market is already seeing the impact of falling interest rates, with nearly half of Canadians telling a new survey that they are planning to buy a home in the next five years and more than 15 per cent saying cheaper mortgage rates will allow them to make the purchase sooner than expected.

Younger Canadians, who are struggling with far more debt than their parents did at the same age, are the most likely to respond to falling rates. More than a fifth of millennials told a Bank of Montreal home buyers survey that they have shortened their time-frame for buying a home because of lower rates and 75 per cent said they were planning on making a purchase within the next five years.

Regionally, the demand among buyers is strongest in Ontario and Atlantic Canada, where the combination of low interest rates and cheaper oil prices are poised to put more money in the pockets of consumers. Nearly a fifth of residents told pollsters that they would speed up their home purchase because of low interest rates.

In contrast, just 13 per cent of residents in Quebec and 12 per cent in Alberta said lower rates were having an impact on their buying decisions. Plunging oil prices have made Alberta consumers more cautious about jumping into the housing market this year, while a high vacancy rates and a glut of newly built condos in Quebec is pushing more potential first-time buyers into the rental market, according to Desjardins Group.

Mortgage rates have been falling since last week, when the Bank of Canada shocked markets by cutting interest rates by 25 basis points ( a basis point is a hundredth of 1 per cent.) Lenders soon followed, with major banks dropping five-year fixed rates mortgages to as low as 2.84 per cent and this week cutting their prime rates by 15 basis points, which quickly pushed variable-rate mortgages among the Big Six banks as low as 2.25 per cent.

On Friday, BMO said it was lowering rates on several of its fixed mortgages. The rate on a 10-year mortgage, for instance, fell 85 basis points to 3.84 per cent.

Many analysts had predicted that interest rates would rise this year, so the central bank’s unexpected decision to slash rates is widely expected to reignite the country’s cooling housing market. “Given the negative impact of lower oil prices on the Canadian economy, interest rates are likely to remain low for some time, supporting home sales, especially in Vancouver and Toronto where affordability is an issue”, said BMO senior economist Sal Guatieri.

But with mortgage rates falling only slightly and more Canadians telling the BMO survey they were planning to use lower rates to pay down their debt rather than load up on new ones, cheaper rates are expected to have a modest impact on the housing market.

Shortly before the Bank of Canada cut its target overnight lending rate, more than half of Canadians told an earlier BMO poll that cheaper rates would make them more likely to buy a home, though most said the drop would need to be 10 per cent or more to have a significant impact on their buying plans.

Link to article

Canadian Banks on Brink of Mortgage Price War, The Globe and Mail

This article appeared in the Globe and Mail on January 27th, 2015 and was written by Tamsin McMahon.

Canadian low mortgage ratesCanada’s major banks are heading into a renewed mortgage price war in the wake of the Bank of Canada’s surprise decision to cut interest rates.

Mortgage brokers reported that Royal Bank of Canada dropped its five-year fixed rate for qualified borrowers to 2.84 per cent over the weekend. While smaller, non-bank lenders have started offering even cheaper rates, RBC’s rate cut is likely a record for a major bank, said Drew Donaldson, executive vice-president of Safebridge Financial Group. The bank also slashed its posted 10-year fixed rate to 3.84 per cent, the lowest nationally advertised rate in the country, said Robert McLister, founder of

RBC spokesman Wojtek Dabrowski said the bank continues to “review the impact of the Bank of Canada’s rate decision,” and that the company’s “individual product lines continue to make pricing adjustments in the regular course of business to ensure we provide competitive rates in the marketplace.”

Bank of Nova Scotia and National Bank of Canada have also cut fixed rates on broker-originated mortgages by 10 to 20 basis points in recent days. Toronto-Dominion Bank said it was dropping its posted 5-year fixed rate on Tuesday to 3.09 per cent, down from 3.29 per cent.

Mortgage officials said RBC was among the last of the major banks to introduce new rate specials.

“National Bank already offers competitive rates over the mortgage rate spectrum as we moved early over the past weeks,” bank spokesman Claude Breton said.

A battle in the mortgage market seemed inevitable given that Government of Canada bond yields have plummeted in recent weeks, falling 57 basis points in the past month to historic lows. Brokers had predicted that falling bond yields were almost certain to drive down the fixed-rate mortgage pricing ahead of the competitive spring housing market even as banks have largely kept their prime rates, which govern variable-rate mortgages along with other types of loans, unchanged. All the major banks will soon be forced to follow the Bank of Canada and cut their prime rates 25 basis points to 2.75 per cent, Mr. Donaldson said. “We expect more cuts to come from all lenders,” he said.

Even ahead of the Bank of Canada’s unexpected rate cut last week, the country’s major banks already seemed poised for a new round of rate cuts this year. Earlier this month, Bank of Montreal chief executive officer Bill Downe told an industry conference the bank was expecting to “again have a fresh offer that is appealing to customers” in the spring. The bank drew the ire of former finance minister Jim Flaherty in 2013 after it dropped its five-year fixed mortgage rate to 2.99 per cent in what Mr. Flaherty called a “race to the bottom.”

The renewed price war is raising concerns that the central bank’s rate cut will add fuel to the country’s overheated housing market even as Canadians struggle under the burden of rising household debt. Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal warned last week that falling mortgage rates could lead to “a monstrous spring in the real estate market.”

Others argue that low rates may not be enough to kick start a housing market that had already begun to slow toward the end of this year as oil prices plunged. Even as they predicted that Canada’s central bank will cut interest rates a second time later this year, TD economists said Monday they expect Canada’s real estate market to fare poorly this year as cheap crude and sky-high house prices in major cities are making it difficult for new buyers to afford to jump into the market despite low mortgage rates. “The housing market is … projected to be a drag on growth, with changes in existing home sales and prices, as well as housing starts, forecast to tilt into negative territory,” the bank said.

Link to article

Mortgage Rates to Dip Following Bank of Canada Rate Cut: economists

This article appeared on the CP24 (CTV News) on January 21st, 2015 and was written by Alexandra Posadzki, The Canadian Press.

TORONTO — Canadian homeowners have likely gained a reprieve from an expected increase in mortgage rates this year.

Economists were expecting rates to dip slightly in response to the Bank of Canada’s surprise move Wednesday to cut its trend-setting interest rate to 0.75 per cent, from one per cent, to soften the blow of dropping oil prices on the Canadian economy.

“This signals that low interest rates will be with us a while longer,” said Avery Shenfeld, the chief economist at CIBC World Markets, noting that the central bank’s rate cut will likely mean a corresponding 0.25 drop in variable, or floating, mortgage rates.

Fixed-rate mortgages are also likely to see a slight decline, as they follow bond yields, which will move lower in response to the rate cut.

However, TD Bank (TSX:TD) was quick to announce Wednesday it will maintain its prime interest rate at three per cent, noting that factors beyond the central bank influence its rates.

“Not only do we operate in a competitive environment, but our prime rate is influenced by the broader economic environment, and its impact on credit,” the bank said in a statement.

It was anticipated that the Bank of Canada would move to increase its overnight rate later this year due to an improving economy, until crude prices started to slide and dropped below US$50 a barrel.

Phil Soper, president of realtor Royal LePage, predicted Canadians could be shopping for cheaper mortgages within days.

“It doesn’t take long to react to a policy change like this,” Soper said. “That’s why it’s such a powerful tool.”

A conventional five-year mortgage stands at about 4.79 per cent, according to data from the Bank of Canada.

Decreased mortgage rates could boost sales and prices of homes in Central Canada, including in Toronto’s red-hot property market, where Soper said prices could climb by 4.5 to five per cent this year.

“It will be a lift to the industry overall,” Soper said. “However, it will be particularly pronounced in Central Canada, which we believe will see a lift from lower oil prices regardless and, when you add to it the stimulative impact of lower mortgage rates, we should see an uptick in activity.”

However, the rate cut may also spur Canadians, who have been criticized previously by the Bank of Canada for holding record levels of debt, to borrow more money.

“Certainly this isn’t going to discourage anyone from taking on debt,” Shenfeld said.

“But I think in the Bank of Canada’s eyes right now, it’s a lesser of two evils. They’ve shown discomfort with the amount of borrowing Canadians have done, but the economy right now can’t afford to shut the tap off on that if we’re not getting the lift to growth from the energy sector.”

Although cheaper mortgage rates are likely to buoy real estate markets in Central and Atlantic Canada, TD economist Craig Alexander says the impact of oil prices will trump interest rates in Western Canada.

“I think it’s inevitable that you’re going to see a pullback in sales and a softening in price growth in real estate in oil-rich provinces because, at the end of the day, income growth in those provinces is going to be a lot less,” Alexander said.

“It is an economic shock, and real estate markets do reflect local economic conditions.”

In its latest report, Royal LePage predicted home prices in Calgary would grow by 2.4 per cent this year – a slowdown from the 5.5 per cent jump they made last year.

Meanwhile, older Canadians who rely on interest-bearing investments for their income could find themselves squeezed as a result of the central bank’s policy change.

“It will push them into looking at alternative investments that can generate a bit more yield than a straight GIC,” Shenfeld said.

Link to article

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