The Greek financial collapse has been in the news over the last couple of weeks. The European zone is the second largest economy, after the US, in the world. The fear is the financial crisis will spread to Spain, Portugal & Italy. This uncertainty has resulted in a stronger US dollar and a weaker Euro (and Canadian dollar). An appreciated US dollar would result in higher export prices to Europe, slowing down the US recovery, and a shaky European economy would cause Europeans to spend less and therefore buy less US products and imports overall.
This is similar to what happened back in September 2008 after the collapse of Lehman Brothers, where companies and consumers stopped spending and the results were dire.
This unpredictability has resulted in Canadian bonds to drop from a high of 3.2 to 2.76 over the last 2 weeks (5 yr fixed rates should come down) and the Bank of Canada’s appetite to increase the prime rate aggressively has decreased (0.25% increase instead of 0.5%) until a clear picture emerges out of Europe.
How will your mortgage be affected? If you are a variable client, the prime rate increase should be moderate in the short term and if you are in the market for a fixed rate, theoretically, the rates should drop slightly in the very near future.
