In its latest rate announcement earlier today, Bank of Canada kept its overnight rate target steady at .75 per cent, with the Bank Rate and deposit rate at 1 per cent and .5 per cent respectively. That rate has remained the same since BoC’s surprise rate cut in January. The overnight rate is the rate at which major financial institutions borrow and lend one-day funds among themselves. When BoC raises or lowers its overnight rate, it can impact the rate of other consumer financial products such as mortgages.
BoC’s announcement states:
“While a weak first quarter in the United States has raised questions about that economy’s underlying strength, the Bank expects a return to solid growth in the second quarter. This will help advance the rotation of demand in Canada toward more exports and business investment. Recent indicators suggest consumption in Canada is holding up relatively well, given the impact of lower oil prices on gross domestic income.”
BoC makes rate announcements eight times per year and the next announcement is scheduled for July 15.
In other mortgage news, CIBC released poll results earlier this month showing that nearly three quarters (74 per cent) of Canadians would choose a medium-term or longer-term mortgage were they to take out a new mortgage or refinance or renew their current mortgage today. That’s not surprising given the record low rates we’ve seen recently and the possibility for higher interest rates in the future.
Many Canadians currently have a fixed-rate mortgage with a five year term, but locking in a longer term of seven or ten years would give those homeowners a sense of stability and avoid sticker shock at renewal time if interest rates increase. However, rates for a 10-year mortgage tend to be higher than short and medium-term rates so in return for stability and protection against potential rate fluctuations, borrowers with longer terms may wind up paying more interest over the life of the loan if rates remain low. Longer terms may also hold more appeal for those who plan to remain in their home long term, because it can be hard to predict circumstances ten years into the future and selling the property before renewal time can incur prepayment penalties.