Bank of Canada interest rate unlikely to top 1% this year

John Shmuel July 23, 2010 – 11:16 am

Slower than expected economic growth in the U.S. is set to hamper Canadian exports, meaning the Bank of Canada’s interest rate is unlikely to rise beyond 1% by the end of the year, says a research note from Lombard Street Research.

The bank raised interest rates by 25 basis points earlier this week to 0.75%, in a move that was widely expected. The note, authored by analyst Michael Taylor, points out that the bank adopted a very cautious stance in regard to the Canadian economy going forward.

But Lombard Street Research said it expects lower growth than even the Bank of Canada’s revised figures. That leads Taylor to suggest that interest rate hikes from the bank are likely going to be hold on for much of next year.

"We would agree with a domestic slowdown, due to the expiry of temporary policy measures as well as the effects of higher interest rates on a highly indebted household sector. But the Bank has a rather optimistic view on US real GDP growth, which is expected to be around 3% both this year and next. Healthy growth in the US, combined with the recent fall in the Canadian dollar, has resulted in an increase in projected export growth for 2010 and 2011. Our view is that US growth will be below-trend over the next 18 months or so, restricting the scope for Canadian exports to grow strongly (three quarters of which go to the US)."

That leads Taylor to conclude that although a rate rise is likely at the next bank of Canada monetary policy meeting in September, he expects rates to be on hold thereafter for quite some time.

Read more: http://business.financialpost.com/2010/07/23/bank-of-canada-interest-rate-unlikely-to-top-1-this-year-report/?utm_source=twitterfeed&utm_medium=twitter#ixzz0uWj05DPa


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Pre approved or Pre qualified?

An explanation.

Both these terms are now used to describe the the action of seeking a mortgage approval before actually negotiating a property purchase. Unfortunately, in most cases, the borrower is not really fully approved for the mortgage and the lender does little or nothing to actually qualify the borrower.

What really happens is that the typical lender now provides an interest rate guarantee for a period of time, usually to a maximum of 120 days. The borrower is advised that they are pre approved and can begin shopping for a home.

At the pre approval stage, many lenders do not review credit or even determine if the client meets their guidelines for income and down payment. Lenders begin the actual qualification process when the file goes 'live' (meaning the Borrower now has an accepted Contract of Purchase). At this point the lender will begin a serious examination of the borrower's qualifications and may refuse to proceed with the pre approved mortgage for a wide variety of reasons. Because of this, it is very important for purchasers to keep their offer to purchase 'subject to mortgage approval'.

If rates have risen since the original pre approval and the lender now declines the mortgage, the client may no longer be able to get as good a rate elsewhere. Borrowers can reduce the chance of disappointment and get full approval faster by working with a professional Mortgage Broker early in the process. A broker will often recognize potential concerns and address them directly with lenders at the time the pre approval is requested. It may even be prudent to gather employment and income documentation at this stage, particularly for individuals who are self-employed or have had changes or inconsistencies in income or employment. Gathering documents early also helps reduce stress and waiting time after that hard search for the right property at the right price!

Your Mortgage Broker is an experienced professional and will assist in reviewing and advising you in the process. You will be doing yourself a favour by reviewing your situation with a Mortgage Broker before you write that offer!

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