It was a huge surprise to everyone when the Bank of Canada announced yesterday that it is cutting its key interest rate by 0.25% to 0.75% from 1.00%. There hasn’t been a movement upwards on downwards in the key interest rate in over 4 years.
The big question is – What impact is this change going to have on me?
Cheaper mortgages for clients that have variable or adjustable mortgages:
Since variable and adjustable rate mortgages are determined by the prime interest rate and are linked to the overnight interest rate of the Bank of Canada. This will also be dependent on each individual lender if they reduce their own prime interest rate. Current mortgage holders with fixed interest rates, will not see a change on your monthly payments. However, people that are taking a new fixed rate mortgage or renewing their old one right now could see the interest rates come down. The reason being that fixed mortgage rates are dependent on the bond market. The bond market have already started to come down of the change in the interest rate by the Bank of Canada.
Unsecured and secured lines of credits:
Similar to the variable and adjustable mortgages, unsecured and secured lines of credit are normally linked to the bank’s prime interest rate which is linked to the Bank of Canada’s overnight rate. Which means that if you are borrowing money from a line of credit your cost of borrowing will come down. Again, this will be dependent whether or not the bank cuts their prime interest rate.
There was a huge drop on the loonie:
With yesterday’s announcement on the drop of the Bank of Canada’s overnight rate it affected the Canadian dollar as it had a huge drop. This means that if you are looking a shopping in the States or planning an international trip it is going to cost more.
By the Bank of Canada changing the overnight rate it will affect the interest you will get from having money in a traditional savings account. There won’t be a huge change but if you are not earning much interest before you will be earning even less. Perhaps it might be worth it to explore other options.
Is your mortgage coming up for renewal, you are thinking of refinancing or looking at purchasing a new home? We will be pleased to help you explore your options based on your individual needs. After all, it is not about the mortgage, it’s about a strategy that is going to help you save time and money in the long run especially when interest rates start going up!