If you have a variable mortgage thank the Bank of Canada today

March 4, 2008 · Filed Under Mortgages · Comments Off 

The Bank of Canada just cut the key interest rate by 50 basis points (or 1/2 percent) to 3.50%. Chances are throughout the week, those with a variable mortgage (currently at 5 per cent) will see this reflected at their respective banks. For those mortgage shopping, this can lead to a very attractive scenario. Based on a 25 year mortgage at $200,000, it can save you approximately $58 per month. Remember that the variable rate mortgage is not directly related to the fixed rate mortgage so you may not see the 4 and 5 year term mortgage rate drop by 50 basis points. Your personal loans and lines of credit will also be reduced by 50 basis points.

The reason: the Bank of Canada based the decision around its January projection for inflation which has shifted to the downside. They also noted clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected. With inflation measures already showing a sharp slowing – the core CPI inflation rate dropped to 1.4% in January from 2.5% last June – the Bank decided to act aggressively and trim the overnight rate by 50 basis points to offset the downside risks facing the economy.