After several months of record low rates, the Bank of Canada today announced that it will continue to hold the key overnight rate at 0.25 percent, where it has now been for most of 2020.
The Bank restated that it plans to keep rates at this effective lower bound until inflation rises to its target of 2%. Under its updated forecasts, this is unlikely to happen until 2023. The Bank says this extended projection is largely due to slowing recovery as a result of surges in COVID-19 cases.
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How does this affect mortgage borrowers?
James Laird, Co-founder of Ratehub.ca and President of CanWise Financial mortgage brokerage, said that a period of sustained low rates is good news for most mortgage borrowers, no matter their rate type.
“With rates at record lows there is no wrong answer right now,” James said.
“Canadians who derive value from certainty should choose a fixed rate. For Canadians who are open to a little more risk, considering a variable rate is certainly appropriate since the Bank is committed to keeping rates where they are for at least another 2 years.
“If the economic recovery stalls there is the possibility that the Bank moves rates down further, which would benefit anyone in a variable rate mortgage.”
James says that for people looking for extreme financial certainty, the current rate environment offers some unique opportunities.
“Canadians who plan on staying in their existing home for the long term might consider a 10-year fixed-rate, which is available at around 3 percent and would guarantee their mortgage payment for an entire decade.
“Many Canadians are considering refinancing to take advantage of low rates. They should make sure to get a penalty quote from their existing lender to ensure that the savings are worth the mortgage breakage costs.”
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