Debt Reduction

What Do These Historically Low Interest Rates Mean for You?

By September 21, 2020 No Comments

As you might have heard, interest rates in Canada are at an all-time low.

These rates are being pushed down by the uncertainty from COVID-19 and we don’t see them rising anytime soon.  Actually, the Bank of Canada hinted that interest rates won’t rise until 2023: “Based on the Bank’s new forecasts, this implies it has no intention of raising policy rates for several years,” wrote Capital Economics economist Stephen Brown.

“While the Bank may eventually raise its central scenario forecasts for growth and inflation, our forecasts are still consistent with the broad message in today’s policy statement,” he added. “That is, despite the huge stimulus, there is little chance that a surge in inflation will justify raising interest rates within the next few years.”

So what does this mean for you?

Great news! If you are currently in a variable or adjustable rate, this means your rates are predicated on Prime Rate which is currently set at 2.45%.  You either have a variable or adjustable rate of Prime (2.45%) minus or plus a spread.

For example: If you are at Prime -.50%, you would be 2.45% (Prime) – .50% (your discount) = 1.95%.

If you have any unsecured or secured lines of credit, student loans, certain car loans, etc, you will be seeing low interest rates for the foreseeable future.

The spread being offered on variable rates is slowly coming down and there might be an opportunity to reduce your current variable or fixed rate and take advantage of the historically low rates.  There could be a cost to do this (penalty, legal, and/or appraisal) so we’d have to run the numbers to see if it makes sense.  The best part of a variable rate mortgage is it comes with the lowest penalty which equals 3 months interest.

If you are currently at a fixed rate, this means you’re locked in for the remainder of your term at your current rate.  There might be an opportunity to break your current fixed rate mortgage and take advantage of the low variable or fixed rates BUT it would have to make sense.  We will have to factor in a penalty and closing costs to see what the savings actually are.

These low rates are good for everyone, it’s just a question if you can take advantage of them now or in the near future.

If you’d like to see what your options are, please reach out and I’ll see what we can do.

Inderraj Saini

About Inderraj Saini

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