Mortgage Rates Cut Coming
The Bank of Montreal's rate cut - effective Monday - will chop its five-year rate to 5.25%, down from 7.2%. We expect this is the first salvo in a round of rate cuts as major banks try to inject some sanity into the housing market. The cut came after Ottawa confirmed it would buy up a further $50 billion in high-ratio mortgages (the kind backed already by Canada Mortgage and Housing Corp. insurance).
What the banks are realizing is that a rate cut is needed to spur consumer confidence; that the Canadian housing market remains rock-steady (the default rate is 0.27%) and the economy remains among the strongest in the world. Bank of Canada governor Mark Carney has signaled further rate cuts at the next sitting on December 9. "Despite having already cut official interest rates in half over the past year and having a financial sector that is still functioning effectively, some further monetary stimulus will likely be required to achieve the inflation target over the medium term," he said. Should you lock in for five years at 5.25%? Wait a week and see if you can get an even better bank rate, which we think you will. (Meridian Mortgage has five years posted this week at 4.99%; 7 years at 5.25%.)