The Bank of Canada has lowered its target for the overnight rate by one-quarter of one percentage point to 0.50 per cent. This is the second time this year that the Bank of Canada has lowered the rate, after about 5 years of sitting at 1 per cent.
Canada's banks historically follow the Bank of Canada's lead, but last time it took a week for the banks to respond, and when they did respond they announced a 15 basis points reduction instead of the full 25, leaving the banks' new prime rate at 2.85 per cent. This time however, just minutes after the BoC's announcement, TD Canada Trust announced they'd be lowering their prime lending rate by 10 basis points to 2.75 per cent, effective July 16th, 2015.
- Related Read: Bank Of Canada Maintains 0.75 Per Cent Interest Rate (March 4, 2015)
- Related Read: Prime Rate Drops: What Does this Mean For Canada's Mortgage Rates? (February 4, 2015)
- Related Read: Bank of Canada Unexpectedly Cuts Interest Rate To 0.75 per cent (January 21, 2015)
What Exactly Is The Overnight Rate?
Basically, the overnight rate is the interest rate banks charge each other when they lend money amongst themselves. When the overnight rate changes, the prime interest rate often follows. This is why the overnight rate may affect your mortgage rate; when the prime interest rate moves (whether up or down) it has a direct impact on variable rate mortgages (whether wholly variable, or partially).
Fixed rates are not directly affected by the overnight rate in the same way as a variable rate mortgage. Fixed rates are affected primarily by Government of Canada bond yields (with a corresponding maturity). Since the first cut back in January, bond yields have trended lower for the most part. However bond yields are based on investor demand, so do not always follow the overnight rate and the trend can change at any time. Only time will tell if fixed rates will change too.
Compare Mortgage Rates
Lower variable rate mortgages, and possibly even fixed rate mortgages, suggest that first time home buyers and homeowners could benefit from mortgage rates that are at historical lows. Compare mortgage rates today because it's the only way you can be confident that you're getting the best mortgage rate possible.