Canada Recession and affect on Mortgage Rates

[00codefinder]

Hi,

We keep reading articles that Canada is being hit with a recession. Just wonder what effects will this have on mortgage rates.

I have a variable rate mortgage now. Just wondering should I lock my mortgage in or will rates continue to fall. Hope we can shed some light on this topic.

Thanks,

00

[jheath]

First of all, if you've got a variable rate mortgage anywhere near prime or below, you're in great shape, keep it and do not lock in unless you get a ridiculous offer (well under 5%) to do so. It's just about unanimous now that there will be another prime reduction on Dec 9th, and if your lender follows, your interest rate will drop again. Ride the wave, it would appear that prime will not be going up anytime soon.
Amongst other factors, the Bank of Canada prime is in place to try and balance economic activity. If the country is spending wildly and inflation begins to get out of control, rates will increase to attempt to curb spending and inflation.
We are currently in an opposite scenario, with some predicting some deflation in the economy. So, the Central banks have no choice but to keep their base lending rate low to try and stimulate spending / economic activity.
Fixed rates at this time are probably a little bit artificially high. Longer term fixed rates (3 years or greater) are generally tied to bond yields. Right now, bond yields are ridiculously low, however rates have not followed as money is tight, reserves are low and interbank lending is practically non existent.

Long answer to a short questions...Keep your variable for now, for sure, no question

[mikeycanuk]

From what I've read bank are losing money on variable rate mortgages and are trying to convert them to fixed. Stay with your variable!!!! F- the banks and don't let them scare you! I'd also be overpaying too to get the mortgage down with such a low rate. Dec 9 is the next BOC rate announcement, rumored to be a .5% cut.

Interest rates won't go up for at least 2 years at which point I'd lock in. There is too much money being pumped into the system and inflation is going be be the bogeyman in 2011+. Right now, enjoy and be thankful! And also try to keep your payment the same and get the principle down as interest rates plummet.

[00codefinder]

wow, thanks guys for the info. Greatly appreciated. And I like what you said, good time to pay extra on the mortgage.

Excellent help.

00

[Newbieinvestor]

wow, thanks guys for the info. Greatly appreciated. And I like what you said, good time to pay extra on the mortgage.

Excellent help.

00

Every day there's a new factory shutting down in Ontario and oil drops crushing Alberta.

The BoC is going to cut rates for at least the next year.

Too bad they didn't take action this time last year when rates were at 6.75

[liorsyncro]

From what I've read bank are losing money on variable rate mortgages and are trying to convert them to fixed. Stay with your variable!!!! F- the banks and don't let them scare you! I'd also be overpaying too to get the mortgage down with such a low rate. Dec 9 is the next BOC rate announcement, rumored to be a .5% cut.

Interest rates won't go up for at least 2 years at which point I'd lock in. There is too much money being pumped into the system and inflation is going be be the bogeyman in 2011+. Right now, enjoy and be thankful! And also try to keep your payment the same and get the principle down as interest rates plummet.

Well, they're taking a hit on the grandfathered mortgages, that is all those variable mortgages that they had before this credit crisis started, but I wouldn't go as far as saying they're losing money on them. They're taking a hit with their profits, but in most cases they're still in the black. It's their exposure to other risky derivatives, in many cases outside of this country, where they're taking a serious hit and having to write off losses.

In Canada variable rates have always been about .5% less than prime. But believe it or not, in Europe it's not like that. Many banks over there, even in good economic times, rarely pass any central bank interest cuts to their customers, and if they do it's only partial. They justify it as the cost of doing business with them. It's only here in Canada that consumers have been spoiled, and that's attributed to the banks being very conservative with their lending criterias. The banks in Britain, for example, were more reckless and now most of them are partly owned by the government. It started with Northern Rock and since then Halifax and RBS have joined the chorus, and a few other lenders declared bankruptcy altogether.

In response to the original poster, in the short term interest rates will continue to remain low. In the long term, it all depends how quickly the world recovers and to what extent. For example, if you read the newspapers regularly you see how the figures are constantly being adjusted, unemployment, inflation, growth, consumer confidence, etc. Most economists are saying the world will have a brutal 2009 but there should be some recovery around 2010. If that is the case, you should be fine for at least two or three years and enjoy low interest rates. But of course the status quo can change, just like the weather.

The situation of the markets right now is so unpredictable and volatile that no one really knows where we're heading. Once again we'll use Britain as an example. Britain is already is a hard recession and despite that, the Bank of England is not reducing interest rates any further (I believe right now they stand at 3%, ours is 4%). Some have suggested that the BOE should drop the rate to as low as 1% to match the Fed's rate in the States to stimulate the economy, but so far this has not happened. So don't count on dire times to have the interest rate reduced to almost nothing. The best advice is keep yourself informed about what's happening with the markets and you should weather the storm fairly well. And don't let all those tossers at your local bank tell you otherwise!

[Newbieinvestor]

Well, they're taking a hit on the grandfathered mortgages, that is all those variable mortgages that they had before this credit crisis started, but I wouldn't go as far as saying they're losing money on them. They're taking a hit with their profits, but in most cases they're still in the black. It's their exposure to other risky derivatives, in many cases outside of this country, where they're taking a serious hit and having to write off losses.

In Canada variable rates have always been about .5% less than prime. But believe it or not, in Europe it's not like that. Many banks over there, even in good economic times, rarely pass any central bank interest cuts to their customers, and if they do it's only partial. They justify it as the cost of doing business with them. It's only here in Canada that consumers have been spoiled, and that's attributed to the banks being very conservative with their lending criterias. The banks in Britain, for example, were more reckless and now most of them are partly owned by the government. It started with Northern Rock and since then Halifax and RBS have joined the chorus, and a few other lenders declared bankruptcy altogether.

In response to the original poster, in the short term interest rates will continue to remain low. In the long term, it all depends how quickly the world recovers and to what extent. For example, if you read the newspapers regularly you see how the figures are constantly being adjusted, unemployment, inflation, growth, consumer confidence, etc. Most economists are saying the world will have a brutal 2009 but there should be some recovery around 2010. If that is the case, you should be fine for at least two or three years and enjoy low interest rates. But of course the status quo can change, just like the weather.

The situation of the markets right now is so unpredictable and volatile that no one really knows where we're heading. Once again we'll use Britain as an example. Britain is already is a hard recession and despite that, the Bank of England is not reducing interest rates any further (I believe right now they stand at 3%, ours is 4%). Some have suggested that the BOE should drop the rate to as low as 1% to match the Fed's rate in the States to stimulate the economy, but so far this has not happened. So don't count on dire times to have the interest rate reduced to almost nothing. The best advice is keep yourself informed about what's happening with the markets and you should weather the storm fairly well. And don't let all those tossers at your local bank tell you otherwise!

Lots of calls for severe cuts in the UK.

[BTron]

The BoC is going to cut rates for at least the next year.

Then short interest rate futures? What if the Chinese, Indian or Brazilian economies prove to be more self-sustainable that people anticipated and they're fuelling their internal development and >5% GDP growth rate and are less affected than the rest of the world? And commodity prices get a dead cat bounce and oil and coal and steel increase in value again and the Canadian economy benefits?

You can't make blanket statements like that, no one actually knows.

[ShopSmart]

I can't believe people are talking like they know exactly how interest rates will be in the near or long term.

I'm shocked.

[Newbieinvestor]

Then short interest rate futures? What if the Chinese, Indian or Brazilian economies prove to be more self-sustainable that people anticipated and they're fuelling their internal development and >5% GDP growth rate and are less affected than the rest of the world? And commodity prices get a dead cat bounce and oil and coal and steel increase in value again and the Canadian economy benefits?

You can't make blanket statements like that, no one actually knows.

How does India look today?

And China relies heavily on the US market. Have you checked the Chinese stock markets recently?

I am confident that rates will continue their trend.

Going for P -8 in August has turned out pretty well

[Thalo]

How does India look today?

Eh, I think their financial capital is kinda experiencing its own 9/11 right now as we speak. Can't be good for their stock markets.

http://www.theglobeandmail.com/servl...rnational/home

[Newbieinvestor]

Eh, I think their financial capital is kinda experiencing its own 9/11 right now as we speak. Can't be good for their stock markets.

http://www.theglobeandmail.com/servl...rnational/home

Yep.

[pitz]

Recession = mortgage rates go higher as other sectors of the economy, in particular, businesses and government, place greater demands on the capital markets for financing.

Just open up a newspaper these days and see all the perfectly good businesses that can't obtain credit on favourable terms. Policy target rates may come down, but spreads will increase, especially on over-invested asset classes such as mortgages.

On the totem pole of lending, typically mortgages and other consumer credit are amongst the lowest. Businesses haven't needed loans in the past 5-8 years, because of high profitability, and a lack of investment -- so plenty of money was available to finance mortgages, pushing rates down. Now the cycle is turning.

[gizmo8]

"Recession = mortgage rates go higher as other sectors of the economy, in particular, businesses and government, place greater demands on the capital markets for financing."

wrong,the Canadian government is buying billions of the banks mortgages to offer liquidity to the markets,in a recession why would they raise rates where deflation is a strong possibility and your trying to stimulate a economy and not slow it down.If you have a good credit rating you will get lower rates.

J

[spaghettifreddy]

Recession = mortgage rates go higher as other sectors of the economy, in particular, businesses and government, place greater demands on the capital markets for financing.

I'm extremely puzzled by your motives. Really. Your replies are so far off to the extreme that I come to a screeching halt and ask WHAT?

If the economy is or is heading into a recession, and everyone is counting their pennies and not spending, why would the governments and banks make it harder to access money?

Doesn't it make sense that when no one is spending that reducing rates will encourage people to spend money, thus getting the economy moving again?

Since you are so sure that the mortgage rates are going higher, tell me when do you think they will go higher? In the short term (next 6 months), next 1 year, next 2 years, or much longer in the next 3 -5 years?

Most sensible people usually eliminate the extreme opinions. While some folks will read your response and be shocked or scared, I'm fairly sure most will not take your advice to heart. I'm just extremely curious as to what event occurred that motivates you to post these kinds of extreme ideas.

In any case, have a nice life.