The Bank of Canada has stuck with the US’ Federal Reserve today, and joined the Fed in cutting rates by half of a percentage point. The interest rate cut came as a surprise to most, since the next scheduled interest rate announcement for the Bank of Canada isn’t until October 21, 2008.
The cut puts Canada’s benchmark lending rate at 2.5%, making the prime lending rate 4.25%. The European Central Bank, as well as three other central banks also cut their rates by one half of a percent.
Speculators don’t think that the Bank of Canada is stopping with the rate reductions, however, as many believe that the benchmarking lending rate will be lowered once again on October 21.
The interest rate announcement came on the heels of many of First Foundation’s mortgage lenders announcing that their variable rate, adjustable rate, and HELOC (Home Equity Line of Credit) mortgages would be increasing in rates, since funding costs for these types of mortgage products are becoming higher and higher.
Merix Financial announced that the new rates for its Adjustable Rate Mortgages (ARMs) would be Prime + 1% (5.25%), up 1.6% from just a few weeks ago. Additionally, its HELOC product (and Adjustable Rate Portion within the HELOC) would have a rate of Prime + 2%, making the rate 6.25%.
Macquarie Financial has decided it will not longer be offering Adjustable Rate Mortgages because of the costs to them. Other lenders, such as First National Financial, have also increased their ARM lending rates by a percent or more.
That being said, all is not lost. Some lenders are still offerings ARMs for Prime, and despite speculation that the Canadian economy is about to cruise into recession, there are still those with positive outlooks. You can read more here.