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.
Well, variable mortgages are more likely to be affected by changes in the key interest rate than fixed mortgages because variable mortgages move with fluctuations in interest rates. When interest rates go down, so does the rate on a variable mortgage. When interest rates go up, the interest on a variable mortgage follows. Fixed rate mortgages are long-term loans and therefore depend on long-term interest rates, but homeowners are still able to take advantage of low rates if their mortgage is up for renewal—nice!
Not only are mortgage rates affected directly by the Bank of Canada's key interest rate, they are also affected by intense competition from lenders looking to entice homeowners. Some lenders offer fancy mortgage packages for homebuyers to compete for business. This means that you should shop around to find the best rate and the mortgage package that meets your needs.
Prospera Credit Union, for example, has their myStyle Mortgage, which offers perks including up to $1,000 to cover costs associated with the new mortgage and a $5,000 line of credit. There are tons of incentives out there, so you may need to take some time to find the right fit for you—especially after digesting all this number talk.
If you’re looking for a great deal, we recommend checking out Prospera’s mortgages, they’ve got a handle on key interest rates, prime interest rates, and all those other terms that you’d rather ignore while finding your perfect Vancouver home.