What Does the BoC Holding the Key Interest Rate Mean for Home Buyers?

What Does the BoC Holding the Key Interest Rate Mean for Home Buyers?

Current Interest Rates. Why Buy Now?

Current Interest Rates. Why Buy Now?

Last Wednesday, the Bank of Canada (BoC) decided to keep the nation’s key interest rate at 1.25%. However, while the announcement is great news, the rate isn’t expected to stay this way for long. The forecasted hike is something we should all be aware of, as it will have an impact on industry and consumer behavior across the country.

For many Canadians, this provides a short window of opportunity to buy a home and lock in your interest rate while it’s low.

Governor Stephen Poloz noted that while “Interest rates remain very low relative to historical experience”, he strongly suggested that they’d go up in the near future. As to why the benchmark rate would rise, he didn’t provide much detail, but said that “almost by the law of gravity, interest rates will move somewhat higher over time.” The obvious reasons are the recent growth of the Canadian economy and the astoundingly low unemployment rate of 5.8% (the lowest in 4 decades). The Canadian economy is expected to continue to grow.

Experts such as Kevin Carmichael of The Financial Post are predicting the key interest rate to increase in one of the BoC’s next two Policy Interest Rate Announcements: either May 30th or July 11th.  This is because the BoC made it clear that the low rate was a short-term strategy to maintain the steady growth of the Canadian economy.

For a full list of the Bank of Canada’s upcoming announcement dates, click here.

In short, the question facing home buyers and the Canadian economy at large isn’t whether the benchmark rate will increase — it’s when, and by how much. So, let’s take a closer look at this with three common questions home buyers in Canada are asking. 

What does a low key interest rate such as this mean for the Canadian Housing market?

For one, it means that good prices on mortgages will be the standard for the next little while. They likely won’t be after that. Many Canadians looking to buy a home will get off the sidelines and into the game sooner rather than later.

An even bigger factor than a low key interest rate, sometimes, is the anticipation of rate-hikes to come. That’s the situation we Canadians find ourselves in now — we’re likely to get a good price on a mortgage in the near-future, but that opportunity will soon fade away.

What’s the relationship between the Key Interest Rate and the mortgage rate you pay when you buy a home?

While the Bank of Canada’s interest rates are not the same as the rates offered on mortgages by banks, the figures trend in the same direction. When the key interest rate lowers, so will the rates offered by private Canadian banks. And, like we’re seeing now, when the BoC’s key interest rate remains low, these same banks will keep their mortgage rates to a similar pace.

The lower the key interest rate, generally speaking, the less interest you’ll pay on your home when you borrow from a bank. This translates to lower monthly payments and more disposable income.

Are there other factors that should influence when to buy a home?

On top of the low mortgage rates, Blatchford has also reported the wide-held feeling that “Inflation is running close to its ideal target with wage growth strengthened in a tightening labor force.” This is good news!

That means the strength of the economy is outweighing the low-interest rates — providing potential home buyers the chance to buy at a good rate while simultaneously reaping the benefits of a strong Canadian economy. Factors here to consider are your ability to pay off your debts, job stability, career opportunities, and rising wages. Considering these, there are some solid perks!

With a quick look at how things are going with the BoC, it’s clear that both the market and our economy are indicating that it could be a great time to step into home ownership. If buying a home has been on your radar, perhaps this is the time to make your move! If you’d like to learn more about NewRock Communities in your area, be sure to visit our communities page.