Bank of Canada Spring Rate Cut

Great news for people who are interested in purchasing or refinancing a home this spring. The Bank of Canada just cut it’s “overnight rate” to 3% – down .5% from yesterday. That means a subsequent rate drop in ‘Bank Prime’ is going to be coming either right away, or at the end of the month – depending on the lender.

This cut was done to soften the blow of the slowdown in the economy in the US. The general theory here is that, by lowering interest rates, the Bank of Canada is able to stimulate the economy because consumers and businesses can access capital at a lower cost, therefore encouraging them to borrow and purchase, or borrow and invest. All of this creates economic activity, which creates jobs, which sustains the tax base of the government. This is all done with a keen eye on inflation, which the Bank wants to maintain at no higher than a 2% increase per year.

How does that affect you, the Canadian Mortgage Consumer? Well, in the near term it significantly reduces the interest you’ll pay on Adjustable Rate Mortgages (ARM), Home Equity Lines of Credit (HELOC), and Reverse Mortgages. It also makes the Smith Manoeuvre that much more attractive, because at these rates it will be almost impossible to not find an investment that can make you money.