For the second time in 2015, the Bank of Canada has cut their overnight lending rate, resulting in record low mortgage rates & validating the variable mortgage rate strategy.
In mid-July, the Bank of Canada decreased the overnight lending rate from 0.75% to 0.50%, and Canada’s big banks followed suit by decreasing their prime lending rates by 0.15% to 2.70% – the second decrease in the prime rate this year.
The Bank of Canada holds interest rate announcements eight times a year; these interest rate announcements serve as a platform of discussion for the Bank of Canada to discuss various factors impacting the Canadian economy, such as the cost of goods in Canada, household debt and the economy at large.
In the latest interest rate announcement, the Bank of Canada cited slower than expected economic growth in Canada as a driver for the lowered overnight rate.
“The bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection,” the Bank of Canada communicated in their statement.
Although the Bank of Canada expects a rebound in Canadian GDP later in the year, the statements from the Bank of Canada make it quite clear – do not expect an increase to the overnight lending rate until the Canadian economy shows a significant and sustainable improvement or if an uncontrollable bout with inflation were to impact the Canadian dollar. Currently it appears that either of these events are some time away.
What does this mean for the average Canadian home-owner?
Home-owners with variable rate mortgages have not seen an increase in rates since September 2010, which was the last time the Bank of Canada moved their overnight lending rate upwards.
But a low rate means more than just a lower monthly payment. For years, MonsterMortgage.ca has advocated using the lower rates offered by the variable rate mortgage and increasing your monthly payments – putting money directly towards the principle of your mortgage & saving even more on interest. Even just paying your variable rate mortgage as if you had taken a fixed rate mortgage can get your mortgage free years earlier.
So why not start taking money out of your bank’s pocket, and putting it into yours?
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