As expected, the Bank of Canada announced today that it is holding the overnight rate at 0.5%, noting that “the global and Canadian economies have been consistent with the Bank’s projection of improving growth” although “exports continue to face ongoing competitive challenges” and that even with gains in employment, there still is “subdued growth in wages.” As uncertainties continue to weigh on the economy, the Bank “judges that the current stance of monetary policy is appropriate.”
Overall, the global economy is strengthening largely as anticipated and prices of some commodities, including oil (at $54 US), have risen. In contrast to the United States, Canada’s economy continues to operate with material excess capacity. The US unemployment rate has fallen well below Canada’s and is widely expected to continue to run below Canada’s over the next few years. Meanwhile, the Canadian dollar (at $0.76 to $1 American dollar) has strengthened along with the US dollar against other currencies, hampering the outlook for exports. Consumption is expected to remain solid, while residential investment will continue to be tempered by previously announced changes to housing finance rules. The Bank of Canada projects that Canada’s real GDP will grow by 2.1% in both 2017 and 2018.
We expect to see interest rates staying low in Canada well into 2020. The Bank of Canada believes it must continue its monetary policy of ultra-low rates to control inflation, stimulate other sectors of the economy besides housing and spur our Canadian export market.
The new mortgage rules announced in 2016 mean lenders now have different rules and rates for insurable vs. uninsurable mortgages. If a mortgage is insurable, it will qualify for the best rates. Most homebuyers know that if they have less than 20% downpayment, they need to pay for mortgage insurance as a way to protect the lender. In order to obtain the lowest cost of funds, some lenders use this insurance to insure mortgages with more than 20% equity.
Mortgages that are “uninsurable” can include rental properties and second homes, switch mortgages that move to another lender, 30-year amortizations, refinance mortgages, mortgages over $1 million, and even some conventional 5-year mortgages. These mortgages are now charged a rate premium and some lenders no longer offer them. Additionally, interest rate surcharges are often charged if it’s difficult to prove your income or you have bad credit, the property is in a rural location, you want a long rate hold, you want the best pre-payment privileges and porting flexibility, and you don’t want refinance restrictions. As a result, be wary of rates you see online, because you might not qualify for them.
Without a doubt, insurable vs. uninsurable has made the mortgage landscape significantly more confusing. Getting good solid advice is critical, and Mortgage Brokers, with access to alternative lenders with flexible guidelines, have never been more important in the home financing process.
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