Since September 2010 the overnight interest rate has sat at 1 per cent, and now it's even lower
In a surprise move, the Bank of Canada has lowered its target for the overnight rate by one-quarter of one percentage point to 0.75 per cent.
What's this mean to homeowners with mortgages, or people looking to buy a home or even a car this spring?
Your Mortgage Rate
If you've got a variable rate mortgage, a drop in the rate means your monthly mortgage rate payments are likely going to be less. But, why not take the money you're saving each month to make a lump sum on your mortgage at a later date? It will help you chip away at your mortgage principal faster helping you pay it off sooner.
- Related Read: Tips To Pay Off Your Home Mortgage Sooner
If you've got a fixed mortgage rate, the interest rate cut won't directly affect your mortgage payments...for now. Because fixed rates typically follow bond yields, RateSupermarket.ca reports that "the Bank of Canada's dire stance could affect bond investor sentiment. Currently, bond yields are at historic lows, and fixed rates remain very competitively priced. However, with the Bank displaying a lower level of confidence in the economy, investors could change their tune, and sell off their bonds, meaning yields, and fixed rates, could rise."
Your Auto Loan Rate
Since most auto loans are also fixed rate, it is unlikely the announcement will immediately impact car financing. However, the interest market is highly competitive, so consumers may see a break on car loan interest rates down the line.
The Upcoming Home Buying Season
Lower rates suggest that this upcoming home buying season could be interesting as those considering buying a home may have even more reason to do so. But, given the Bank of Canada's concern for the economy some potential home buyers may opt to ensure they are-and continue to be-financially secure before jumping in. Only time will tell if lower mortgage rates heat up the real estate market, or if the Bank of Canada's concern for the economy, cools it.
Still thinking about buying a home this year? Learn about some insurance tips to help you save during the home buying process.