Do Fixed and Variable Rate Mortgages Move in Unicen?

As we near the announcement of the Canadian Federal Budget next week, many potential and existing homeowners are expecting interest rates to drop --significantly. Accordingly, many people are similarly predicting mortgage interest rates to drop comfortably. While this prediction may come true, it is possible for the Bank of Canada to decrease its Prime Lending Rate without having any impact on Fixed Mortgage Interest Rates.

The reason a drop in the Bank's Prime Lending Rate does not necessarily equate to a drop in Canadian Mortgage Lenders' available Fixed Rate Mortgages is because the two are generally affected by a different set of factors, are designed to accomplish somewhat different objectives, and are controlled by an altogether different set of parties.

The Prime Lending Rate is a reflection of the Bank Canada's Overnight Lending Rate --which is the rate at which financial institutions are able to access short term funds. The Bank of Canada works with the Government of Canada to achieve targeted objectives set out by the Minister of Finance and Parliament. As a result of this relationship, the Prime Rate is often set in a way to maximize its positive effect(s) on the economy.

In contrast, Fixed Rate Mortgages are based on the Canadian Bond Market and therefore functions in response to market fluctuations and activity. As a result of this discrepancy between Fixed and Variable Rate Mortgage Interest Rates, it is possible for both to be moving in opposite directions --such as when the Government is looking to curb inflation while companies are seeking out capital investment.

For more information about Fixed and Variable Rate Mortgages, contact one of the qualified Alberta Mortgage Professionals or visit www.albertamortgagecentre.com or call 780-479-2222.