CC image “House in Vancouver” courtesy pnwra
Early in 2015 the Bank of Canada cut its key interest rate by 0.25 percent. Sure, that sounds nice, but what does it mean? Well, it’s good news for people looking to purchase homes or renew their mortgages. This is because some mortgages will stay relatively inexpensive, making home ownership in Vancouver a more attainable prospect (yes, you did hear that correctly).
How exactly does the low key interest rate affect mortgages? The Bank of Canada defines the key interest rate as “the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves.” Eight times a year, the Bank of Canada announces whether the key interest rate is changing or staying the same. This January, they announced the key interest rate was decreasing to 0.75 percent—a good thing for new homebuyers as the market is much more competitive.
Banks themselves have a prime rate, which is the interest rate they charge their customers—often their favourite customers. The prime rate is usually tied to the key interest rate, which means as the key interest rate drops, so do prime rates and short-term interest rates, including the rates for consumer loans and certain mortgages. “But how does that affect me?” you ask.
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