BOC Leaves rate alone....for now

Here’s some highlights from the bank’s July statement:

• The bank is now saying “some of the considerable monetary policy stimulus currently in place will be withdrawn”  compared with “eventually withdrawn” in the last statement
• Economy now forecast to grow 2.8% in 2011, 2.6% in 2012, 2.1% in 2013 (Down from April's forecast)
• Forecasts for 2012 and 2013 remain unchanged
• Headline inflation is expected to stay north of 3% due mostly to higher energy and food prices
• Core inflation is “slightly” higher than anticipated, owing to “persistent strength in the prices of some services”
• Core CPI to remain around 2%
• Total inflation expected to return to 2% target in middle of 2012
• Economic expansion proceeding “largely” as projected
• Canadian growth still expected to re-accelerate in the second half of 2011
• “Growth in household spending is now projected to be slightly firmer, reflecting higher household income” relative to April projections
• Bank forecasts “assumes authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome”

What does all this mean to you the everyday consumer?

Well from my Point of View it means that the Prime lending rate is going to stay where it is for the time being and probably through to the first quarter of 2012.

That can mean substantial savings for those in the Variable rate products of today.
Take this quick example of savings on a $100 K mortgage for ease of calculations.

Today's best fixed rate is 3.79%. on a 100 K mortgage that is a payment each month of $514.69.
That is further broken down to $201.33 in Principal and $313.36 in Interest each month.

The variable product is at a going discount rate of .75% or 2.25%.
This works out to $435.61 each month
That is further broken down to $248.98 in Principal and $186.63 in Interest.

If the rate for the Variable stays where it is for the next 6 months into 2012 like they are predicting, then here is what you would save:
- The principal amount which pays your mortgage balance down each month, you would put an extra $285.90 into your mortgage
- The interest savings over the same period is $126.73 per month or $760.38 over 6 months.

there are further savings to be had if this particular mortgage product is set up properly by your trusted mortgage advisor.

Ask them about using the Variable but setting it up like it is a fixed rate product.

Until next time....


Kevyn