Overnight interest rate cut, Would it also cut mortgage rates?

[Matrix_dot_ca]

As the title says, If they cut the interest rate on Dec 4. What interest rate would be affected? Savings? mortgage rates?

[blexann]

As the title says, If they cut the interest rate on Dec 4. What interest rate would be affected? Savings? mortgage rates?

the cut in the prime would directly affect variable rate mortgages

[pitz]

Many of the same issues that exist concerning MBS in the US also exist in Canada, ie: weak buyer appetite.

So I wouldn't expect BoC rate cuts to be fully passed through to new mortgages. Of course, if your existing mortgage is contractually indexxed to bank Prime or the BA yield, then you should see some benefit.

I would expect, as the credit crunch subsides, savings account rates would fall.

Government of Canada securities have already priced in a number of rate cuts, so they are unlikely to be materially affected.

[ehmcee]

Varibale rate mortgages linked to Prime will drop in step with the rate cut. Fixed mortgages will not move. Banks will determine how much to adjust GIC and interest account rates based on their situtaions.

[Thalo]

Pitz, do you think there's a chance they might not lower prime with the overnight rate? Given the difficulties the banks are still having selling CP and BAs at current rates, I can't see them dropping rates there by a quarter percent. A drop in prime might eat entirely into their interest margin.

[Matrix_dot_ca]

SO If i were to get a mortgage by middle of December has no difference (rates) if I get one today?

[Thalo]

SO If i were to get a mortgage by middle of December has no difference (rates) if I get one today?

The fixed rates probably won't change much. They reflect an average of the expected rates over the next 5yrs and are really more related with bond rates than overnight lending rates (incidentally bond yields are down over the past couple of months, that's more likely to cause mortgage rates to go down than a change in the overnight rate).

If you got a variable rate mortgage it would be lower if you got it in December, after the rate cut than if you got it now. That being said, if you got the mortgage now, at the higher rate, your rate will reset to the lower rate in January.

[Matrix_dot_ca]

The fixed rates probably won't change much. They reflect an average of the expected rates over the next 5yrs and are really more related with bond rates than overnight lending rates (incidentally bond yields are down over the past couple of months, that's more likely to cause mortgage rates to go down than a change in the overnight rate).

If you got a variable rate mortgage it would be lower if you got it in December, after the rate cut than if you got it now. That being said, if you got the mortgage now, at the higher rate, your rate will reset to the lower rate in January.


the reason I asked is I will be selling my home and will purchase another by March. If I could get a good rate by January, I might locked my self in for 5 yrs.