Posted by: MonsterMortgage.ca
No, this isn’t a description of a band of superheros, but a description of the Bank of Canada (BoC).
And on January 20th, 2016 – the BoC will make their first interest rate announcement of the year.
Each interest rate announcement is of great interest to many Canadians, but should be especially important for home-owners with mortgages.
Home-owners should take notice of the Bank of Canada interest rate announcements because the BoC’s decision regarding the overnight lending rate, because some home-owners could soon find themselves paying less (or more) money in interest on their mortgage.
The BoC’s overnight lending rate is what influences the Canadian banks’ prime rates. If you currently hold, or have ever inquired about a variable rate mortgage, you might be familiar with the prime rate – that is – the rate that determines your effective mortgage rate.
Currently, in the Canadian mortgage marketplace, some of the best mortgage products offer rates in the range of ‘Prime – 0.30%’ or so. The prime rate in Canada is currently at 2.70% – so effectively, the mortgage rate on a ‘Prime minus 0.30%’ product, is 2.40%.
When the Bank of Canada decides to move their overnight lending rate up or down, Canada’s largest lending institutions typically move in lock-step.
That is to say, a Bank of Canada decision to lower their overnight lending rate by 0.25% would result in a prime rate of 2.45%; changing the mortgage rate on the previously mentioned ‘Prime minus 0.30%’ mortgage product to 2.15% from 2.40%. A decrease in the prime rate now means that home-owner will be paying less in interest, and keeping more money in their pocket.
If you’re currently hold a variable rate mortgage, you’ll continue to enjoy historically low interest rates on your mortgage loan. The overnight lending rate has not been increased by the BoC since September 2010 and does not appear to be ready for an increase any time soon. The reason that many observers believe the Bank of Canada will not raise their overnight lending rate is due to a number of macroeconomic and microeconomic factors; including but not limited to inflation, Canadian household debt, the Canadian economy and the economies of our closest trading partners.
Many MonsterMortgage.ca clients have used these historically low rates not to carry more debt, but to get to zero on their mortgage – faster One way MonsterMortgage.ca helps their clients pay off their mortgage faster is through the Monster Terminator Program which helps home-owners become disciplined in shaving years off their mortgage, saving thousands of dollars in interest and making the most of the mortgage marketplace.
Each dollar you contribute over and above your regular payment now goes directly towards paying down your mortgage and paying less in interest.