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Showing posts from June, 2007

How much the rates will rise?

The Bank of Canada made it very clear that it is going to raise rates come July 10. The bond market is already anticipating it. In fact, the bond market is already discounting roughly 50 basis points rate hike by September 2007. We had false alarms in the past where the bond market discounted rate hikes only to be proven wrong, with the 5 and 10 year bond rates rising and falling accordingly. But this time it seems that the bond market has a very good reason to predict a rate hike. The Bank of Canada is concerned about inflation (which at 2.5% ) and the fact that the labor market is still very strong. It is very possible that raising rates now will end up to be a monetary policy error with the Bank of Canada probably overshooting. The Bank of Canada appears to be determined to raise rates, and that’s what counts. How much will rates rise? Here, we have to realize that there are two important factors that should limit the magnitude of any rate hike. It is far from clear that the slump

Variable vs Fixed

Just like always, variable rate mortgages are offering bigger bang for your buck in Canada. Prime rate remains 6% and at 5.1% (prime -.90%) variable rate mortgage is the best interest rate available in the market for a mortgage that has a term of five years. The best rate available on a five year closed fixed rate mortgage varies from 5.45% to 5.65%. While adjustable rates have remained the same for over a year, fixed mortgage rates have consistently risen. Before April 2nd, 2007, the fixed rate was lower than the adjustable at 4.99%.