For the third time in a row, the Bank of Canada has decided to keep interest rates at 1.75% as of today, March 6, 2019.
This may be surprising to those of us that were expecting rates to keep rising based on the language the Bank of Canada was using last year. Rates were on their way up ever since July 2017, when they were at historical lows of just 0.50%.
A low interest rate is good for people with a lot of debt because it’s cheaper to pay it off. This is especially good for people with mortgages, as even small increases in rates can cost hundreds of dollars of month more in mortgage payments.
Unfortunately, it’s not so great for savers. When interest rates rise, that includes rates on the best high interest savings accounts and GICs. Bond yields also increase (but bond values on the open market goes down).
When interest rates stay the same, nothing changes with your mortgage.
Fixed rate mortgages never change for the life of the term. Even if rates had gone up, your mortgage would have the same rate.
Variable rate mortgages change how much interest you pay whenever the bank raises or lowers rates, but when the rates stay the same, so does your mortgage.
The Bank of Canada took a much softer approach this time around when addressing whether they’d raise interest rates in the future.
“Both exports and business investment also fell short of expectations. After growing at a pace of 1.8 per cent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January,” the Bank’s statement read. This implies that they’re less likely to increase rates in the near future.
Rates are usually increased when the economy is doing well, and lowered when the economy is doing poorly. Lowering rates when the economy is down stimulates spending, which brings the economy back up, in theory.
The Bank of Canada doesn’t really want to raise interest, either. With mortgage debt at nearly an all-time high, they understand that raising interest rate could put a lot of people in financial trouble. Those who took on mortgages that were more expensive than they had originally planned, or those who refinanced their house and spent their equity, are at high risk for delinquency, and ultimately, default.
Keep in mind, though, that Canada’s delinquency rate on mortgage debt is currently just 0.18%. That’s lower than many European countries like Spain, France, and even Great Britain. It’s also far below the rate of mortgage delinquencies in America.
Rising rates are unlikely to trigger a housing crash like the American Housing Crisis, but it certainly would affect some Canadians that are teetering on the edge of home affordability.