Rates Have Dropped….. So What…..


Rates Have Dropped….. So What…..

January 21, 2015

This morning Governor of the Bank of Canada, Stephen Poloz, announced a cut to the bank’s overnight lending rate. The rate which has been at 1.00% for the past four years was reduced to 0.75%. The move apparently surprised many financial analyst who certainly didn’t expect it and were anticipating rates to rise over the next year.

According to an article published in today’s Globe and Mail;

“The rate move, which few analysts anticipated, is an attempt by Mr. Poloz to shield highly indebted Canadians households from an oil-induced hit to their jobs and incomes – signs of which are already evident in Alberta.”

The rate cut has real estate and mortgage professionals across the country excited that instead of the real estate market imploding and house values dropping 20-30% as many analyst have been predicting (for the record, I have no idea where houses prices will go over the next year, but I certainly don’t see them dropping 30%), this may actual add fuel to an already very hot market and have many buyers who were sitting on the fence get into the house buying game.

But how does this move by the central bank affect the average Canadian, and what is the benefit to them. A rate cut usually triggers banks, mortgage and finance companies to lower their rates on mortgages, loans and lines of credit. I can’t ever recall my credit company dropping my rate when rates went down, but it has been four years since this last happened, so they may have and I just never noticed. The big winners however are home owners who have a variable rate mortgage or a home equity line of credit (HELOC). These two products are directly tied to the prime lending rate which is influenced by the Bank of Canada overnight’s lending rate.

As of yesterday, TD Canada Trust’s prime lending rate was 3.00%. With the reduction today, that rate is now 2.75%. Added to this already great rate, is the fact that many lenders give qualified borrowers a further discount off the prime rate by as much as 0.75% but generally around 0.55%. Homeowners with a variable rate mortgage product must be quite elated today.

But what does it mean for them? It means that if they have a $350,000.00 mortgage  amortized over 25 years and have a variable rate product at prime minus 0.55%, this rate drop will translate into a monthly reduction in principal and interest payments of $43.55 and a total savings in interest over the next year of approximately $1,200.00. Alternatively, the borrower(s) could leave their monthly payments as they were and see the benefit of their amortization (or the period left to pay off the mortgage) being reduced.

To see how you and your family can best benefit from the rate reduction, visit our web site and use our handy mortgage calculators to see how much interest you will be saving.


For homeowners who are considering moving up or refinancing to consolidate high interest credit debt and loans, or looking for funds to do upgrades to their home or assist university age kids with tuition costs, now may be the ideal time to start that conversation with a mortgage professional to take advantage of today’s rate reduction announcement. What ever borrowers choose to do, the reduction in the overnight lending rate can only benefit them now and in the future.

For a review of your mortgage portfolio and to see if you can benefit from the rate drop, schedule your consultation with the Ray C, McMillan Mortgage Team, or visit www.RayMcMillan.com 

Ray C. McMillan has been continuously licensed as a mortgage professional  in the Province of Ontario since 1999.

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