If you haven’t heard, Canada loses 71,000 jobs in November, most in 26 years. The news sent Canada’s Loonie falling to almost a four year low. Meanwhile, US has lost over half a million jobs in November, most in 34 years. So this effectively makes it certain that there will be subsequent rate cuts for Canada as expected in the first quarter of next year. Question is how much more rate cuts can you get before you realize that it is much too little, way too late?
Interestingly with all the rate cuts, the recovery when it comes will come with a sharp hike in the rates. What does this imply? At the moment, most banks are no longer offering floating rates. For term loans, starting position of all the institutional lenders are now 50% Loan-To-Value, with 5-year fixed rate at 7.5% - 7.9%. For operating credits, RBC & BMO are pricing and/or re-pricing with P+1.75% as the benchmark. Now consider a 5 year fixed rate, if historic peak to peak is 7 years, it will most certainly not take 5 years for the market to rebound (probably about 3 ½ years).
If you still need me to spell it out, for those of you who need to get a loan, negotiating a fixed rate will actually work to your favor in the long run. Sorry to say, things will get tougher for the banks and that is what worries me at the moment.
Interestingly with all the rate cuts, the recovery when it comes will come with a sharp hike in the rates. What does this imply? At the moment, most banks are no longer offering floating rates. For term loans, starting position of all the institutional lenders are now 50% Loan-To-Value, with 5-year fixed rate at 7.5% - 7.9%. For operating credits, RBC & BMO are pricing and/or re-pricing with P+1.75% as the benchmark. Now consider a 5 year fixed rate, if historic peak to peak is 7 years, it will most certainly not take 5 years for the market to rebound (probably about 3 ½ years).
If you still need me to spell it out, for those of you who need to get a loan, negotiating a fixed rate will actually work to your favor in the long run. Sorry to say, things will get tougher for the banks and that is what worries me at the moment.
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