Bank of Canada holds key rate

Brandon Scott is a Sherwood Park & Edmonton based mortgage consultant and the author of a weekly column entitled Real Estate Solutions in the Sherwood Park News. This article was originally published on December 7, 2012 On Tuesday, December 4th the Bank of Canada announced it is keeping its key policy rate at one per cent. “In Canada, economic activity in the third quarter was weak, owing in part to transitory disruptions in the energy sector. Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013.” The reason these announcements are followed closely by financial institutions and other lenders is that this rate can have an impact on other rates like your personal loan, the foreign exchange rate, and more commonly your mortgage. For instance the rate on a home equity line of credit or variable mortgage is connected to the prime rate which is currently at 3 per cent. Based on Tuesday’s announcement it is likely that banks will keep the prime rate unchanged. However, should the Bank of Canada’s overnight rate increase above one per cent you may find that lenders will increase their prime rate. This means of your existing mortgage payment more would go towards interest and less toward the principal. A day prior to the rate announcement Canadian Finance Minister Jim Flaherty said “We are on track, as we anticipate, for modest growth, moderate growth, in the next fiscal year,” he told reporters in Ottawa. “When it comes to consumer debt, I am encouraged by the reaction of Canadians. More Canadians are paying down their mortgages; more Canadians are paying their credit cards on time. This is very desirable,” he said. Knowing that rates may increase at some point in the coming year now is a good time to begin planning by taking advantage of increasing your mortgage payment slightly or making a lump sum payment. Any additional amount over and above your current payment would go straight towards the outstanding balance (principal). As a result should rates increase, you could be paying less interest since your mortgage balance is now lower than what it would have been had you not taken advantage of those options which most lenders allow. Now that’s something to smile about this holiday season. Download the current e-edition of the Sherwood Park News