BANK OF CANADA SUGGESTS CORONAVIRUS CONCERN IS REASON BEHIND RATE CUT
As the herd mentality causes Costco shelves around the region to go empty, the Bank of Canada has followed the Fed by reducing its key interest rate down a half percentage point to 1.25%. The corresponding Bank Rate is 1.5% and deposit rate is 1%. Whether or not you buy into the explanation, the cut is certainly a reality. However, Bank of Canada governor Stephen Poloz had indicated a rate cut was likely several months ago.
WHAT DOES THIS MEAN FOR MY CURRENT MORTGAGE?
If you have a variable mortgage, you’ll likely be paying less interest and therefore your mortgage payments should go down. What the government wants to see you do with your savings is to spend it on consumer goods to boost the economy. If you have a fixed rate, however, you won’t see any immediate advantage to this announcement.
WHAT IF I’M SHOPPING FOR A HOME?
If you’re shopping with a fixed-rate mortgage in mind, again, this may not have a lot of impact as banks use bonds to fund mortgages. Alternatively, if you’re shopping for a home with a variable mortgage, you’ll be happy that the interest you’re paying on your mortgage will be lower – for as long as the low rates are maintained. Be sure to discuss the advantages and disadvantages of variable rates with your trusted mortgage broker.
DOES THIS AFFECT HOME PRICES?
Keep in mind, however, that the interest rate advantage is often short lived for buyers. Cuts to mortgage rates usually stir home buying activity and therefore – you guessed it – higher home prices. So if you’re in the market, it’s time to take action. If you wait too long, yes, you’ll get a better interest rate, but you’ll have less purchasing power than you have today.
By Brad Richert, Sotheby’s International Realty Canada