Best financial moves to make: mortgages
By: Peter Diekmeyer,


In Canada mortgage rates tend tied more to the bond market than they are to banks' prime rates. That means the recent 25 basis point cut in the Bank of Canada's key rate is unlikely to affect mortgage rates directly.

That said, there are several underlying trends that homebuyers should consider when making their mortgage decisions.


Fixed rate mortgages

At the time of this writing economists are predicting that the Canadian economy will under-perform the United States for the rest of the year. The Canadian dollar remains strong, inflation is in check and interest rates are higher here than they are south of the border.

As a result many analysts expect further Bank of Canada rate cuts down the road. If the bond market reacts positively, this could also indirectly eventually lead to lower mortgage rates.

In Bankrate Canada's survey of large lenders the average five year fixed rate on February 22nd was 5.45% compared to 5.46% the week before. The average ten year fixed closed rate was 6.98% compared to 7.00% the week before.

Best move now:

Predicting interest rate swings is a bit of a mug's game, which thousands spend most of their working lives trying to do, often with mixed results.

The upshot is that the average consumer is unlikely to have more success than the pros do. That means making timing decisions related to your mortgage, could prove to be counter-productive.

Canadian fixed mortgages are near multi-decade lows. If you like the security of knowing what your payments are going to be a few years down the line, feel free to lock in your mortgage now.

That said, if the Bank of Canada continues to cut its Bank Rate, the bond markets are likely to respond, short-term rates are likely to fall even further, and long-term will eventually follow. That means if you wait a bit, you may be able to lock in your mortgage at even lower rates later this year.

Adjustable rate mortgages

In Bankrate Canada's weekly index of mortgage rates offered by large lenders, the average open rate mortgage stood at 4.24%, unchanged from last week.

Adjustable mortgages have been a good bet during the past ten years, as interest rates have drifted steadily lower. However there is an element of risk attached to adjustable rate mortgages.

The problem is that if interest rates suddenly spike up, many homeowners risk getting caught with a rapid rise in their monthly payments. Worse, to hedge against further increases they may be forced to lock into a fixed rate mortgage just when rates are at higher levels.

Best move now:

If you are holding an adjustable rate mortgage or are thinking of buying a house soon, you should stay the course for the time being, because Canadian interest rates are likely to stay low until the end of the year.

That said, it is precisely when interest rates are low that it pays to think about locking in with a fixed rate mortgage.


Best financial moves to make: Home Equity
By: Peter Diekmeyer,

With the Bank of Canada reducing its short-term rates what are the smart home-equity loan moves for you to make?


Home equity loans:

Home equity loans, especially those with short terms, tend to follow the major financial institutions' prime rates. These in turn closely track the Bank of Canada's key lending rate. As a result, the BoC rate cuts tend to have a direct effect on many home equity loan products. Longer maturity home equity loans, like mortgages tend to fluctuate more with the bond market.

In Bankrate Canada's March 1rst weekly rate survey, one-year home equity loans had an average rate of 8.46%, which was essentially unchanged during the past six weeks.

You can use Bankrate's home equity loan search engine to find the best rates in your area. You'll find the lowest rates on short-term loans.

Best move now

Spurred by the renovation boom and low interest rates, home equity loans have emerged as an increasingly attractive option in recent years. Buying a bigger home entails massive moving and upgrade costs attached to it, so it often pays to improve an existing property.

As with most interest rate decisions, you should make your home equity loan moves based on current rate levels. Do not try to time your decision based on how interest rates might fluctuate in the future.

Right now interest rates are low so if you are thinking about a home equity loan it's a great time to move. Don't forget to comparison shop.

Home equity line of credit

Most home equity lines-of-credit are tied to the prime rates, which fluctuate based on Bank of Canada rate actions.

During the week of March 1rst, the Bankrate Canada's average survey rate on unsecured HELOC's was 7.62% and 5.69% on secured HELOCs. Search for the best HELOC rate in your area.


Best move now

HELOCs continue to be a great way to borrow money. They are cheaper than credit cards, conventional financing and are a better deal than term home equity loans. A home equity line of credit is also a good way to consolidate more expensive loans, which carry higher rates of interest.

If the BoC makes further rate cuts later this year, HELOC rates will also drop. That said, they are such a good deal relative to other loans products, that waiting for a few basis points improvement is hardly worth the trouble.



Best financial moves to make: Credit cards
By: Peter Diekmeyer,

Credit card interest rates don't generally fluctuate with Bank of Canada interest rate moves.

Credit card rates are among the most expensive ways to borrow money, with retailer's credit cards (eg. Sears and Petro Canada) generally higher than those issued by banks and other financial institutions.

That said, in recent years the variety of credits card that are being marketed is increased exponentially, especially for large and small businesses.

For example in March 1rst, Bankrate Canada's survey of credit card products, the interest rate charged on outstanding monthly balances ranged between 8.5% to 20.5% depending on the issuing institution and product.

But credit cards also have big benefits. Credit also cards remain a convenient alternative to carrying a large amount of cash, and most companies don't charge you any interest if you pay your balance in full each month, which gives you the equivalent of a 30-day interest free loan.

Best moves to make

Because of the wide range of products offered and interest rates charged, shopping around to find the right credit card for you can yield significant savings.

Compare credits cards using Bankrate Canada's credit card search.

In addition, you should probably put as many purchases as you can on your card, in order to help keep track of your spending and to benefit from the 30-day interest free period.

That said, you should always pay your credit card balance in full at the end of the month. If you can't discipline yourself to do that, you should probably use a cheaper form of credit, such as a home equity line-of-credit.


Best financial moves to make: Car loans
By: Peter Diekmeyer,

The recent Bank of Canada rate cut should eventually trickle down to car loans, particularly those offered by the big banks.

The average car loan rate on March 1rst according to Bankrate Canada's survey information ranged between 9.34% for a 36 month new car loan to 9.44% for a 60 month loan.

Just as in the U.S., the big car companies' financing arms have been offering rock bottom financing as a loss-leader, so that they can keep their production lines flowing. Car company rates can run as low as 0% in with certain promotions.

Best moves to make now

It always pays to shop before taking out a car loan.

Pay particular attention to the low rates offered by the car companies, because they often give you the option of taking a big cash rebate instead of the low rate. You may save more money by taking the rebate, and financing instead through a bank.


Best financial moves to make: Savings
By: Peter Diekmeyer,

Canadian savings rates continue to yield anemic returns to the country's savers, bringing havoc on those with fixed incomes. The recent Bank of Canada interest rate cut will only make things worse.

One year redeemable GIC rates have held more or less steady since late January, with Bankrate Canada's average rate at 1.39% on March 1rst. Non-redeemable one year GICs are doing only slightly better paying 1.69% on average.

Long term rates tend to do much better with the five year non-redeemable GICs paying 3.23%.

Best moves

Many economists think that the Bank of Canada's next move on interest rates will be downward. That said, locking in money at today's rates seems like a fairly unattractive proposition for most people, despite today's low inflation rates.

The best strategy for most people continues to be a laddered portfolio with maturities split between short, medium and long-term rates. That provides a hedge if interest rates should continue to fall, and frees up cash to make longer-term GIC purchases for when rates eventually begin to ease back up.

Check Bankrate Canada for the best CD rates across the country.