Rob Viccars

Like most of us, I was very interested to hear that the Bank of Canada had dropped its prime rate by half a percent to 3.5%, with the suggestion of more cuts to come.

 

What has been the effect for the real estate buyer considering the common, five-year fixed rate mortgage?  So far, not much.  If you are a bit more of a gambler, and a variable rate customer, this week's cut automatically pushed your rate down.  I have seen variable rates as low as 4.65% this week.

 

Meanwhile, the five-year fixed rate is hovering around 5.64% 

 

So why haven't fixed rate mortgages followed and seen a significant drop?  If you're looking for a detailed explanation, I'd give your mortgage broker a call.  In the simplest terms (yeah, right), the global credit crisis, caused by the sub-prime disaster in the U.S. has made it more expensive for Canadian lenders to access funds.  Canadian lenders are also attempting to limit their long-term risk by keeping fixed rates higher.

 

That one percent discount off the posted rate that borrowers almost always automatically received is becoming harder to get.  In essence, banks are increasing the spread between what they pay for the funds and what they charge you to borrow it.

 

However, at the end of the day, the rate cut is good news for home buyers.  If the pressure to stimulate the economy continues, the Bank of Canada will continue to cut rates.  The BC Real Estate Associate suggests that will likely cause the five year rate to edge down also.