The Bank of Canada has decided to keep the Prime rate unchanged for the second consecutive time. With rising costs of fuel and food, and increasing intrest rates over the past year there are now signs of a possible soft landing and an imminent recession by the end of 2023 or early 2024, which may result in a potential rate cut in Prime. This could provide relief to those with variable or adjustable-rate mortgages.
As per the Bank's April Monetary Policy Report, global growth is projected to be 2.6% this year, 2.1% in 2024, and 2.8% in 2025. In Canada, demand is still higher than supply, and the labor market remains tight, while the housing market activity is low. The Bank predicts that CPI inflation will decline to around 3% in the middle of this year and then gradually fall to the 2% target by the end of 2024. The Governing Council decided to keep the policy rate at 4½%, and quantitative tightening will continue to complement this restrictive stance.
If you have a variable or adjustable-rate mortgage, you can choose to continue with it or lock into a fixed rate. Statistics show that most clients benefit from variable or adjustable-rate mortgages, but if you're concerned about further rate increases, you can consider increasing your payment amount and frequency to offset and reduce your cost of borrowing. Alternatively, you can lock into a fixed rate, which will guarantee no further rate increases for the remaining mortgage term.
The housing market has seen multiple offers on homes for sale and continuous property value appreciation in most areas due to low inventory and increased consumer confidence with the knowledge that rate hikes are leveling off. If you already own a home, it's recommended to ride out the interest rate storm. However, if you're looking to purchase, it's important to be aware that the bottom of the market may have already occured based on sales data. It's also recommended to monitor spending habits, audit bank statements to cut unnecessary expenses, and consolidate high-interest debt as soon as possible.
For the complete Bank of Canada announcement, click here. The next update from the Bank of Canada will be on Wednesday, June 7, 2023. If you have any questions or concerns about the announcement or want to discuss your current financial situation, please feel free to reach out.
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