Raising Interest Rates in Canada

Raising Interest Rates in Canada

An economy must be stable in order to produce the kind of consumer confidence that will end up in increased investment in a region. Investors can be easily dissuaded from making large capital purchases, such as real estate, if fluctuating interest rates could end up costing them thousands of extra dollars.

In order to promote some stability in financial markets, banks typically peg their own interest rates for lending against the prime rate set by national banks. Currently, the Bank of Canada is setting the prime rate for lending interest at 1.0 percent, according to this article published by GlobalNews.ca. For private lenders, the average lending rate is right around 3 percent.

These rates are near some historically low levels for the entire country of Canada. These actions to reduce interest rates have been taken by banking officials to promote the flow of credit during the recent global economic slowdown. However, this has been creating a very fluid real estate boom that is founded on a high degree of debt held by Canadian households.

Raising rates to discourage borrowing for mortgages isn’t exactly the right answer, though. Even a raise of a few hundredths of a percentage point can mean an upswing in monthly mortgage payments of $100 or more. It wouldn’t affect fixed-rate mortgage holders, but nearly one-third of Canadian mortgages are variable rate, according to the linked story above.

Yet interest rates are still falling in the country, mostly as a result of banks having to compete with cut-rate broker lenders that are starting to earn a sizable amount of the credit pie. Many experts don’t expect large interest rate hikes to take effect until at least late in 2015.

Smart homebuyers are going to be the ones who are able to take advantage of this recent downturn in interest rates and stay afloat when rates do go back up. River City Financial will help you find out what level of debt you can take on in order to make your homeowning dreams come true. Call us if you’re planning on making a move within the Edmonton real estate market soon.


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