The trend is clear: Slowly, borrowers will pay less and savers will make less
A guide to what lower rates will mean for mortgages, housing and returns on all those safe parking spots for cash
TD Bank economist Rishi Sondhi recently said he expects the interest rate on the five-year bonds issued by the federal government to fall by about 0.4 of a percentage point in the second half of the year, which suggests potential for a similar decline for fixed-rate mortgages. Many homeowners are renewing mortgages later this year and next. They’ll pay a higher rate than they did last time, but potentially not as high as we’re seeing right now.
People who owe money on lines of credit will get some relief as well – exactly 0.25 percentage points’ worth if banks reflect the full cut in the overnight rate in their own prime lending rates. Borrowing costs for lines of credit are based on the prime rate plus a mark-up of varying amounts.It’s expected that lower mortgage rates will entice buyers sitting on the housing market sidelines, but Mr. Sondhi said a big upturn for home prices seems unlikely.
“If prices go up very quickly, that will completely annihilate the relief you would get from a slightly lower mortgage,” said Dominique Lapointe, director of macro strategy for Manulife Investment Management.GIC rates follow the same market trends as mortgages, so get ready for returns to start drifting lower. Yields on one and two-year GICs have held up well lately, with 5 per cent returns still widely available on Wednesday from alternative players.
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