The Bank of Canada today announced that it will be holding the key overnight rate at 0.25%.
This is the first time the BoC has held rates steady since the beginning of the COVID-19 pandemic. In March, the Bank cut the overnight rate by 0.5% on three occasions – on March 4th, March 14th, and March 27th.
James Laird, Co-founder of Ratehub.ca and President of CanWise Financial mortgage brokerage, says the Bank doesn’t have much room to move, with regard to cutting rates.
“The Bank of Canada has reiterated that they are at their lower bound rate and are willing to maintain this rate as long as required to bridge us back to more normal times”, James said.
Want a better mortgage rate?
What does this mean for variable rates?
James Laird said people with variable-rate mortgages should stay essentially stable.
“Variable rate consumers should not expect their rate to go any lower since the Bank has reiterated that they are at their lower bound. The position of the Bank is to leave the rate unchanged until the economic situation stabilizes.
“Variable rate mortgage holders will continue to benefit until the economy is reasonably back to normal.”
What does this mean for fixed rates?
Following the announcement, bond yields dropped by 20 percent to reach their lowest point in the last five years. James says that normally had knock-on effects for fixed rates.
“We would normally expect fixed rates to drop significantly due to falling bond yields.
“However, mortgage lenders continue to include a risk premium in their mortgage pricing because of uncertainty in the economy and rising unemployment.”
If you’re shopping for a fixed-rate mortgage, your best bet is to compare mortgage rates to see the extent by which fixed rates fall in the near term.