The Bank of Canada is holding its overnight rate at 0.50% today, January 20. Lower oil and commodity prices are still weighing on Canada, and I would be careful about treating a steady policy rate as a signal that every Greater Sudbury household or property faces the same outlook.
The decision at a glance
| Policy measure | Announcement |
|---|---|
| Overnight target | 0.50% |
| Change | No change |
| Bank Rate | 0.75% |
| Deposit rate | 0.25% |
Lower commodity prices delay the recovery
Another decline in oil and other commodity prices is a setback for Canada. The Bank estimates that growth likely stalled in the fourth quarter of 2015 and now expects above-potential growth to resume in the second quarter of 2016. Weak business investment remains an important drag, even while household spending and national employment are holding up.
The revised forecast calls for about 1.5% growth in 2016 and 2.5% in 2017. The Bank expects spare capacity to persist until around the end of 2017. It has not yet included the expected measures in the next federal budget, so the forecast should not be read as a settled account of all policy support coming this year.
Cheaper energy and economic slack keep headline inflation low, partly offset by more expensive imports as the dollar falls. The Bank expects inflation near 2% by early 2017 and judges the risks balanced enough to hold. Here in Greater Sudbury, I would put the household budget and the stability of income ahead of the headline rate. A low borrowing rate helps, but it does not replace room for repairs, carrying costs or a change in work hours.
What this means for a mortgage
The overnight target influences short-term borrowing costs, including lender prime rates. Variable mortgages and home-equity lines of credit are more directly exposed to prime-rate changes. Fixed mortgage offers also depend on bond yields, funding costs, the term and lender competition; they can move even when the Bank holds.
The Bank’s most recently available weekly bulletin before today’s decision reports these posted reference rates as at January 13, 2016. They are typical posted rates at six major chartered banks, not discounted offers or an assurance of the rate you could obtain. Today’s policy hold does not itself change a lender’s offer.
| Posted reference | Rate |
|---|---|
| Prime | 2.70% |
| One-year conventional mortgage | 3.14% |
| Five-year conventional mortgage | 4.64% |
Payment illustration: a $300,000 mortgage amortized over 25 years at the 4.64% posted five-year rate is approximately $1,684 per month for principal and interest, using Canadian semi-annual compounding. This is an illustration, not a lender quote. Taxes, insurance, utilities, closing costs and qualification requirements are separate.
Put the announcement into a Greater Sudbury plan
Buying or renewing
Ask for written figures using your balance, down payment and amortization. Compare payment mechanics, prepayment options, penalties and the cash left after closing. A variable mortgage with fixed payments may change how much principal you repay instead of changing the payment immediately; the contract determines the result.
Preparing to sell
Financing affects what buyers can carry, but it does not set one price for every home. Compare recent sales and active alternatives in the same neighbourhood and price range. Condition, carrying costs, presentation and offer terms remain central to the decision.
Official announcement: Bank of Canada, January 20, 2016. The national policy decision does not, by itself, establish a change in Greater Sudbury property values.
For a local plan, explore the Buyer Experience or Seller Experience.
Expect Moore for Your Real Estate.
— Chad Moore, REALTOR®
— Lake City Realty Ltd., Brokerage