Wednesday, July 15, 2015

A rate cut cuts both ways

Earlier this morning, the Bank of Canada announced that it is cutting its key interest rate by 0.25%. The jury is out whether the country's financial institutions will also follow suit (in January the Bank of Canada cut it's rate by 0.25% but the financial institutions only reduced their prime rate by 0.15%).
Any change to the prime lending rate affects borrowers with a variable rate mortgage or home equity line of credit (not fixed rate mortgages as those are priced off of the bond market). 
While the rate cut is great news for borrowers there are pros and cons that come along with an announcement to drop rates. It signals that the overall economy is weak and the government is attempting to stimulate spending and borrowing. It also often has a direct impact on the housing market. Read more here.

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