Variable interest rates in the low 3% range next year? It is certainly possible! There are a growing number of forecasts calling for more aggressive rate cutting in the coming months from the Bank of Canada than initially expected earlier this year. Most economist are calling for an additional 150-225 points in rate cuts, on top of the 75 points we have seen thus far. This could bring the overnight rate down to 2% – we are currently sitting at 4.25%.
Variable mortgages are based on the Prime rate, which for many years has been 2.2% above the overnight rate. A 2% overnight rate would mean a 4.2% prime lending rate. Variable mortgages usually offer a discount from prime rate, some as low as 90-100 points off prime. If we do see a Prime rate of 4.2% a borrower with a 95 point discount would be enjoying a net rate of 3.25%.
How likely is this? Well, it depends on many economic factors both within Canada and Globally. But a 2% overnight lending rate certainly isn’t outside the normal range. In fact, the average overnight rate from January of 2000 to today is almost exactly 2% (2.025% to be precise) The last time we saw an overnight rate above 2% was back in November of 2008, it stayed below 2% until our most recent rate hike over the past 2 years.
Only time will tell what rates will bring next year, but we are heading in the right direction. Next interest rate policy meeting from the Bank of Canada is this Wednesday, Oct 23rd. My bets are on a 50 point cut!
Mortgage questions? As always feel free to reach out.
Craig Van Dolder
BC Mortgage Broker
ON Mortgage Agent Level 2
C. 519-372-8524 E. craig@vandoldermortgages.com Web. vandoldermortgages.com