On March 6th, the Bank of Canada announced that it would leave its key policy rate unchanged at 1.75 per cent. This is the rate that Canadian banks charge each other for overnight loans and while it represents the cost of a business-to-business transaction, the figure holds great sway over the consumer lending market. With either recommended increases or decreases in the BoC rate, mortgage companies, credit card issuers, and automobile financiers usually follow suit by either raising or lowering rates on their debt offerings.
Both fixed or variable rates typically move in the direction of the BoC's, so a hold on the cost of interbank borrowing often signals steadiness in the cost of money for home and car buyers. In the wake of the announcement, at least one home financing institution has decided to adjust its two-year fixed rate mortgage percentage below 2 per cent. Meridian made the move to set rates at 1.98 per cent, and presently, that sits as the lowest two-year fixed number across the expanse of the Great White North.
By holding steady on rates, the nation's central bank seeks to inject life into an economy that has exhibited sluggishness in 2018. This monetary policy, often compared to the serene disposition of a dove rather than the aggressiveness of a hawk, is pursued to trigger borrowing and subsequent household spending, healthy amounts of which are viewed as a key component of a robust economy. Rising rates since October 2017 have dampened Canadians' appetites for goods and services, a lull in hiring has also contributed to what government policymakers hope plays out as a temporary malaise.
Retail lenders have their own business decisions to reckon with and setting attractive rates levels serves to boost revenues and also offer a chance for first-time home buyers to secure a purchase. Lower financing costs on mortgages equate to lower monthly payments for hopeful couples and individuals who may have been previously hesitant to buy a property in the last 16 months or so. A series of rate hikes in that time frame dampened demand for home buyers whose affordability calculations may now improve with the availability of lower rates.
While the cost of money becomes more palatable, banks and credit unions will often loosen up their credit standards as well, meaning that higher risk borrowers who had once been shut out of the market may now qualify for a home loan. This move occurs on a case-by-case basis with respect to each lender so it's always prudent for aspiring mortgage applicants to shop around and discuss varying criteria with a number of applicable businesses.
As 2019 progresses, the future of the BoC's fiscal policy is a wild card. Economic data gathered continuously by analysts may tip the scales in favor of higher rates, and what presents as an acceptable monthly principal and interest payment may not look as attractive in the future.
You can follow interest rate trends and search for mortgage rates in your area at Rates.ca.
