Canadian consumers: Thank you, Mr. Bernanke

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The U.S. decision to hold short-term interest rates near zero through 2014 – 18 months longer than expected – suggests the Bank of Canada now has little choice but to do the same, giving consumers – and brokers – more time to dally in the current low-rate environment, say analysts.

While the U.S. Federal Reserve is projecting continuing economic growth this year, 2.7 per cent, and next, 3.2 per cent, it remains convinced that the troubled jobs and housing markets will continue to challenge spending by both businesses and consumers.

By projecting a longer horizon for low interest rates, it mean to keep the current level of stimulus in place and -- fingers crossed -- encouraging spending.

It may or may not work, said economists Wednesday, following the announcement, but either way drag in the U.S. recovery will likely to hamper Canadian growth.

That would encourage the Central Bank to keep its own overnight interest rate near historic lows, according to Canadian analysts, although not likely as long as its American counterpart.

If the Loonie remains strong, the BoC could hold off edging up that rate as late as 2014, CIBC economist Avery Shenfeld told reporters Wednesday. “Those who have borrowed heavily can take some comfort that they’re not going to be beaten up by a sharp rise interest rates anytime soon.”

Still, that extra time with low rates won’t necessarily benefit mortgage professionals grappling to get buyers off the fence and into the market.

“What I’m experiencing – and what I’m hearing from other seasoned brokers in the Vancouver area – is that we keep checking in with preapprovals and we’re having to roll more of them over because despite the low interest rates clients are in no rush to buy,” Morris Briglio, president and senior mortgage consultant with The Mortgage Advantage, tells

  • Zoltan M. Padar on 2012-01-27 10:06:39 AM

    Once again we are in the danger zone. Clients can breath easy, no sudden rate increases I have read above. You mean their trouble is postponed? Americans have to hold the rates, they do not have any other choice, do not forget. It is not by choice, it is necessary to give a chance for growth. Not a pretty picture by any standards.

  • Joana on 2012-02-29 11:14:47 AM

    I have a vairable mortgage. As a matter of fact I just moved it to another lender (paying the penalty) for a better vairable rate ( 0.6 + prime to -.3 below prime) after only 1 year with our current lender (of a 5 year term). So yes I went from 2.85% to 1.95% on a 305K mortgage. For me it was worth it. My payments are exactly what they were when we started at the first lender a year ago + ago when my rate was at 4.10% (just before the decline in the interest rate). I was able to knock 7 YEARS off my ammorization in 10 months (based on the annual mortgage statement) just by leaving my payment at the higher amount while the interest rate took a dive. A fixed rate would not have allowed me to do that despite using the accelerated optoins available with fixed rates.When the interest rates increase my mortgage will be less as I have been making payments. The increase of the vairable rate will establish my new payment on my current mortgage amount. So my breaking point today is different than what my breaking point will be July 1st when my mortage is $5K less than what it is now (and so on as the BoC rate changes). But point is that if interest rates literally doubled (ie; 2.25% to 5% for example) today then I might be worried but if they gradually increase then I will be fine. And I always have the option of removing the accerated option as well.

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