Once-popular payment method fell out of favour when Canada’s interest rate-hiking cycle began
The decision by the Bank of Canada to cut its key interest rate target this week was good news for borrowers with variable-rate mortgages, bringing back some of the shine for the once popular loans.
When the Bank of Canada cut interest rates to nearly zero in the spring of 2020, those with variable-rate mortgages saw the rates charged on their loans fall too, helping fuel their popularity. In announcing the rate cut Wednesday, Bank of Canada governor Tiff Macklem said if inflation continues to ease broadly in line with the bank’s July forecast, it is reasonable to expect further cuts in the policy rate.
That’s because the expectations are that the Bank of Canada will continue to cut interest rates, lowering the amount charged to borrowers in the future. If something unexpected happens and the central bank doesn’t cut rates, then the rates charged on variable-rate mortgages won’t go down. “Previously in the winter or last fall, we saw discounts to prime as low as 0.15 to 0.3, whereas now we are beginning to enjoy discounts to prime that are approaching one per cent again,” he said.
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