Overnight Rate Drops and the Effects on the Housing Market
Unless you have been living under a rock (and even then), you have no doubt heard about the Bank of Canada big announcement on Wednesday about overnight rates going down. The target rate is being lowered by a quarter of one percentage point to 0.75 percent. It is a very proactive move on the part of the Bank of Canada in its stance on stimulating our slowing market.
Why Did The Bank Do It?
So why exactly did the Bank of Canada go this route? Well contrary to the current headlines that it had everything to do with the housing market and mortgage rates (not true) it was likely instead:
- To stimulate capital spending in businesses; this in turn generates jobs as well as tax revenues. This is predicated on the Banks lowering their prime lending rate along with the Bank of Canada
- To lower the dollar and therefore make our Canadian products (including energy, manufactured goods, forestry, and agriculture) more attractive for purchase by countries around the world
- To assist in counteracting a portion of the dropping export prices for oil and thus protecting more Canadian jobs as well as provincial and federal tax revenues
What Does This Mean For The Housing Market?
Simply put a drop of ¼ percentage point should never be the deciding factor between buying a home or not but it may have you checking FHA loan limits 2021 with a little more urgency. It will tremendously help the homeowners and homebuyers who have followed the variable rate mortgage strategy. This strategy, recommended by REIN since 2007, entails the property owner to choose a variable rate mortgage tied to bank prime but paying the equivalent as if they had locked it in for five years. The payments, as a result, would be higher than if they just paid the required on the variable, but all of the extra cash paid would go directly to paying down the principal of the mortgage. In the long run, this would save the homeowner or homebuyer years and many thousands of dollars in interest.
So, in short, there is no need to worry about your real estate investment journey being derailed. If anything it will help, especially if using a variable rate. At REIN, we are always here to answer your questions about the impact of current events like this so feel free to reach out. Our team of experts can be reached toll-free at 1-888-824-7346.
began his investing career in 1985 with a house purchased in Mission, BC. He is Founding Partner and Senior Analyst at The Real Estate Investment Network and currently owns nearly 200 doors in BC and Alberta. A seven-time best-selling author, his expertise and passion for teaching Canadians how to create wealth through real estate are far-reaching and have made an impact on the lives of thousands. You can follow his daily thoughts on Twitter – www.twitter.com/ and on Facebook at www.facebook.com/thereinman.