September 8, 2010, 8:24 am

Canadian Prime Rate Hikes… AGAIN!

by: The Financial Blogger    Category: Investment, Market and Risk
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While it wasn’t a big surprise, I was still hoping that the Canadian Prime Rate would stay at 0.75% for a little bit longer than this. Unfortunately for me and my line of credit, the Bank of Canada has decided to raise the Canadian Prime Rate at 1.00% (which means that your line of credit will reach 3% at best tomorrow morning!).

Mr. Carney also said that further move on the Canadian Prime Rate will not only be directed by the Canadian economy and current low inflation but also according to the world’s economic situation, leaving him more room for a pause in October.

In fact, if interest rate goes up to quickly, this will push the Canadian Dollar to a higher level (at parity or over parity) and would probably have negative effect on the Canadian economy. On the other side, this is with no surprises that we will reach a 3-4% level in a few years as it is considered to be a neutral rate. Having a 1% rate is considered to be a great stimulus for the economy.

My final thought: stay variable but pay down your debts faster!

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Comments

Although many studies show that, in general, going variable saves money most of the time, these low rates might be the exception to ths rule. I would lock in.

by: The Financial Blogger | September 8th, 2010 (9:59 am)

I agree that it may be the exception. However, people who locked in in 2008 for a 3.85% (or even lower rate) for 5 years have been paying about 1.50% more for the first 2 years of their mortgage… and they are still paying more today…

I agree…stay variable but be aggressive on the debt paydown. I’m still at Prime minus 0.5% so I have no intention of locking in…especially when all signs are pointing to a halt in future rate hikes for a while.

Although with the gap between the variable rate and the 5 year fixed closing, you can’t really go wrong either way right now.

The people who locked in back in April ’09 because “there was no where to go but up” for interest rates are probably kicking themselves.

Personally, I like the move overall, even though personally my wife and I are considering moving and buying a house later this year!

Variable always saves.

@Echo – I’m kicking myself….hard. 🙂
I didn’t do my homework; 3 years ago we locked-into our existing mortgage; 5-year term. Sucks.

Hey FB – have you ever had a fixed mortgage?

@FC,

Never had a fixed mortgage. I bought my first house back in 2005 and I started with a HELOC right away. While Prime rate was much higher at that time, I have figured that variable rate will always be a winner. I’m glad that I’ve made that move!

I am variable too (prime – 0.60%) and it’s all about comparing the savings between a fixed and variable rate. If a fixed rate was to be better, than I would consider it. However, I will stretch variable as long as possible since switching requires locking to a term above your remaining term (or paying fees) and I really don’t like 5 year fix terms. 3 year term is the max I go for if I go for a fixed term as you can blend and extend without fees.

The best rate wins for me. It’s all about minimizing interest payments while accelerating my mortgage.