As the European boondoggle carries on, I think this is a good time to look at what 2012 holds in store for our currency and interest rates.

Fixed term interest rates should remain relatively stable over the next year.  We may see about 0.25% movement either way depending on a number of factors but 5 year terms should still be available at less

than 4% by the end of the year.  Even if the fixed rates do increase slightly, they will still be near historic lows and should entice buyers to jump into the market.  Existing mortgages coming up for

renewal in 2012 will definitely see a huge reduction in interest rates compared to the rates that were obtained 4 to 5 years ago.

The Prime rate is unlikely to change in 2012 but the differential from Prime for variable rate mortgages will likely continue to become more expensive.  The days of Prime less 0.90% are a distant memory as

current variable rate mortgages are ranging from Prime less 0.30% to Prime plus 0.30%. The premium over time will likely creep up for most of the next year. This will reduce the already low spread between variable rates and fixed rates  and drive more consumers to take the fixed option.

The Canadian dollar will see continued volatility in value against the US dollar in 2012.  As the European saga continues, daily movements of half a cent to two cents will probably be the norm.  Unless a dramatic

improvement is seen in Europe, the Canadian dollar will likely range between $0.915 and par for most of the year.  However, the regular large movements in the value will provide opportunities for spot trades for those looking to take advantage of the volatility.

With the crystal ball being as cloudy as it is, there is always a chance that any number of events will throw a wrench into even the best projections.  Major events that may change the global economic landscape include:

- If Europe is able to get its act together for the next major summit in March, there would be an increase in the Canadian dollar and a greater possibility for fixed rates to rise.

- If the EU implodes or the Euro is abandoned, then the Canadian dollar will likely fall further in value while fixed rates have a chance of decreasing.

- The US election is always a wild card as promises are made by all parties.

- If the "Arab Spring" movement continues to spread to more countries in 2012, oil prices may be the biggest change which will help Canada but also increase inflationary risks globally.

Jason McLean   BSc, AMP
jason@garibaldimortgage.com