Buying Your First Home? No Need For Confusion About Canadian Mortgage Rates

If you are a Canadian buying your first home, it is hardly surprising if you feel overwhelmed by the bombardment of daily news and advice that seems to impact on your home purchasing decisions. If it is not more dire news coming out of the United States about their ongoing housing crises, it seems to be confusing and conflicting speculation about the state of our housing and real estate markets. Now, add into this daily news mix analyst and industry uncertainty about where mortgage rates are headed and it seems enough to keep any levelheaded first-time homebuyer on the sidelines. But it doesn?t need to.

On June 10th, the head of Canada?s central bank, Bank of Canada Governor, Mark Carney, went against what were widespread predictions by financial analysts that he would drop the Bank of Canada?s main rate from its then (and now) current 3.0% in an effort to stimulate Canada?s economy. Instead, Mr. Carney elected to leave the BofC?s main rate at its current low level out of an abundance of caution that rising energy and commodity prices could herald a surge in consumer inflation. Mr. Carney, the U.S. Federal Reserve Chairman, Ben Bernanke, and other central bankers from the G7 group of the West?s leading economies had been talking for weeks about the portential for renewed inflationary pressure resulting from the surge in oil, natural gas and commodities prices.

In his most recent address, to Calgary?s Haskayne Schol of Business, on June 19th, Mr. Carney made it clear that ? like all central bankers, it seems ? that monitoring and curbing inflation is his primary focus. ?At a fundamental level,? Mr. Carney declared, ?the primary goal of monetary policy should be to keep inflation low, stable, and predictable.? Noting that ?commodity-price shocks,? like the recent spikes in energy and food prices Canadians have experienced raise what he called ?complex issues,? Mr. Carney nevertheless stressed that ?a relentless focus on inflation clarifies policy decisions, makes communications easier, and maximizes the likelihood that expectations will remain well anchored.? He touted the benefits of keeping to what he called a ?credible inflation target? in order to keep the cost of borrowing down and to allow individuals and firms to make better investment decisions.

The Bank of Canada press release accompanying Governor Carney?s most recent public address noted that, ?The best contribution that the Bank of Canada can make to help all Canadians reap the benefits of the current commodities boom is to remain focused on achieving its inflation target.? As core inflation is running at or near the top of the Bank of Canada?s forecast for 2008, it seems reasonable to presume that there will be no further rate cuts when the Bank of Canada reconvenes to assess its main lending rate on July 15th. More likely, given that we are at the peak of the traditional summer ?driving season? and, as yet, there appears to be little relief in gas prices, the inflation-conscious Bank of Canada Governor may call for a moderate boost to Canada?s main lending rate, likely a 0.25% increase to 3.25%. Canadian banks and other lending institutions appear to be factoring in the likelihood of such a rate increase into their fixed-term mortgage pricing.

If you are buying your first home, the indications from Canada?s central banker are that mortgage rates have bottomed out for now. In the short term, mortgage rates are likely to rise. Consulting an experienced and well-resourced Canadian mortgage broker who can provide advice for first-time homebuyers on the wealth of mortgage types and features that are currently available should be a first step for tentative first time purchasers. Canadian mortgages still remain at near historically low levels, consulting with a professional who can comparison shop the fixed rate and variable-rate mortgages available for first time home purchasers should help flesh out a mortgage market that is still somewhat in flux as the central bank shifts its emphasis away from providing economic stimulus to the Canadian economy and towards keeping an ever-watchful eye on the potential for rising inflation.

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