Royal Bank and Bank of Montreal cut interest rates yesterday.  RBC cut their four year by .75%, likely because they don’t want to compete in the 5 year market where everyone else is, smart move I have to say.  BMO dropped their 5 year rate by 1.05%. (link)Why?  Mostly because of the Government through CMHC providing additional liquidity to the market by purchasing insured mortgages, this allows the banks to lower their spreads (profit if you will) because they do not have to price in as much liquidity risk.  This is a small indication that government interventions are working.  As rates continue to drop both fixed and variable will bring many more buyers into the market, due to a significant increase in affordability, for people who were forced out of the market during the boom.Ready, set, GO! 

For those people who are not concerned about there job or the prospects, and economic slowdown can be good news as you get to save some money.  I filled my car up yesterday at Safeway for .79 cents a litre, I seriously can’t remember when prices were that low.  My mortgage is a variable rate mortgage and is therefore tied to the prime rate, I was also lucky enough to have arranged this mortgage when variable mortgages had discounts of up to .90% off prime.  Therefore my mortgage rate has dropped 2.25% since December 2007.  The market is pricing in  a rate cut of for certain .50% on December 9, 2008, and there is a 36% chance that it will drop by .75%.  The market is also pricing in that the Bank of Canada will further drop the prime rate by .50% to .75% in 2009.  That will mean by this time next year we could have a Prime rate of 2.5% so for those of us who have .9% discounts off prime will see out mortgage rate at 1.6%!!!!! Are you kidding me?What effect would that have?  Well lets look at an average mortgage in Calgary of $330,000 at prime minus .90% your payment a year ago was $1,997.04 for 25 years.  Today that same mortgage would be $1,582.12 a 21% drop in payments in one year.  Now, what would that same mortgage payment be a year from now if we see the drops we are projecting and a stunning rate of 1.6%; how about $1,335.36.  This would be a 16% drop next year on top of the 21% drop this year, some people who negotiated smart mortgages a year ago could see a 36% drop in mortgage payment by this time next year…niceTell me those people won’t spend money?  Retailers will be dropping prices all year next year to entice buyers, soooo those of us not worried about our jobs, take advantage of the deals and the extra spending cash you will have.