The Bank Of Canada’s (BoC) rate was cut to 0.5% on Wednesday. This announcement was big no surprise, as the nation was in anticipation of a rate cut, for the last few months. In addition, BoC has also projected slower growth for the country, for the remainder of the year.
On a positive note, a rate cut means more consumers will be looking for mortgages at cheaper interest rates. Following the announcement of the rate cut, consumers looking to borrow should keep an eye out for the following three thing:
1. The reaction to rate cut from banks
For banks, prime rate cut means not having to pay too much as interest payment to depositors and on the flip side, lowering the prime lending rate means eating in to their margins. TD Bank, Royal Bank of Canada & Bank of Montreal have already announced prime rate cuts, with effect from this week. While it all sounds great that the overnight lending rate has been slashed down to 0.5%, it remains to be seen, by how much the banks will lower their prime rate as a result of the rate cut.
2. The impact of the rate cut on the housing market
Borrowers having access to cheaper loans will be like adding fuel to the fire in an already soaring market. Further, the increase in the number of buyers in the housing market may also lead to housing prices being pushed up further!
Note to borrowers: please ensure that you maintain your debts at a manageable level.
3. Should you borrow more?
Once again, while access to cash at cheaper rates increases the opportunities for investment, it is however advisable for borrowers to be cautious in where they choose to invest. Ensuring that your net return (after taxes) is greater than your interest expenses. Looking at income generating property maybe something worthwhile looking in to.
An article published by the Globe and Mail will enlighten readers on things they should be watching out for with the announcement of rate cut.
If you are looking for a mortgage and would like to explore options available to you, contact the MiMortgage.ca team now to speak to an expert or to get pre-approved, apply now through our secure website.