Hey everyone! I hope you’re all having a fantastic Wednesday. I usually write these posts closer to the weekend, but there’s some breaking news in Canada right now and it just couldn’t wait: if you haven’t already heard, the Bank of Canada has cut its overnight rate by another quarter percentage point.
Now, a quick recap before we really dive into what that means – back in January the Bank of Canada dropped its overnight rate to 0.75%, after it had been sitting at 1.00% since September 2010. As I outlined in my blog post on the subject, the overnight lending rate is Canada’s key policy rate, because it determines how Canadian banks should structure their own interest policies. And back in January, when the Bank of Canada cut their rate by 25 basis points, the Big 6 Banks cut their rates by only 15. That was a big slap in the face to Canadian consumers, because the entire point of the bank of Canada’s rate cut was to stimulate the Canadian economy – and the banks decided to pocket most of the savings for themselves instead.
That brings us to today, where “faltering global growth, disinflation and low prices for oil and other commodities” has caused the Bank of Canada to cut the overnight rate by another 25 basis points – again, with the intent to spur the Canadian economy, particularly by spurring the housing market (as Robert McLister puts it at CanadianMortgageTrends.ca, a “reduction [of 50 basis points] in the 5-year mortgage rate can lead to as much as a 15% increase in home sales nationally”).
Ignoring the larger issue of the current Canadian economy, the biggest problem today is that the Big 6 Banks are pulling the same cheap trick this time around. According to that CBC article, TD has lowered its interest rate by just 10 basis points, an even lower reduction than it made in January. The other banks haven’t responded at all yet (in itself an insult – until this year, there’s always been a simple 1:1 correlation between the Bank of Canada’s overnight rate and the banks’ interest rates), but they’ll presumably follow TD’s lead. What this means is that in 2015, the Bank of Canada has gone to fairly extreme lengths to strengthen the Canadian economy – they’ve cut their overnight rate by a full 50 basis points. In stark contrast, the Big 6 banks – who are the sole beneficiaries of that overnight rate cut – have only cut their interest rates by 25 basis points. That means they’ve only given half of their rate cut to Canadian consumers – they’re essentially profiting off of our economic downturn.
Thankfully, it’s not all as bad as it seems. For one thing, your interest rates are not necessarily dictated by the Big 6 Banks. As a mortgage broker with access to over 40 lenders, I can find you a rate that’s a better fit for both you and the Canadian economy. As I mentioned in my last post, the housing market in Canada is still doing exceptionally well – and as long as you do your due diligence when getting a mortgage (or better yet, have me do it for you!), your interest rate can do exceptionally well too.
Lastly, as a bit of a counterpoint to the overall gloominess of this post, the British Columbia economy is doing amazing right now. From that article in the Vancouver Sun: “Finance Minister Mike de Jong says British Columbia is firmly in the black with a budget surplus of $1.6 billion, significantly higher compared to a forecast of $184 million.” That makes our province’s budget numbers “the best in the country,” and it’s a good reason not to get too worked up about a minor economic downturn (Bank of Canada Governor Stephen Poloz doesn’t even classify it as a mild recession, let alone a significant one).
On that note, I once again urge you all to be conscientious, considerate Canadian consumers. If you’re looking at getting a mortgage, that means consulting a mortgage broker (especially since mortgage brokers don’t charge you anything). If you’re in Northern BC and looking at getting a mortgage, my number is (250) 782-9665, and my phone is always on.
Have a great rest of the week, and remember to stay positive!
Lori Lalonde, Your Northern BC Mortgage Broker