For the 2.5 years I’ve been working at RateHub.ca, I’ve drafted our Bank of Canada interest rate announcement blog posts the night before they went live, knowing the interest rate would “remain at 1.00% for yet another six weeks”. Those exact words were ready to go again, just two weeks ago, when the central bank surprised us all by making its first move in 4.5 years. Read about all the interest rate changes (or lack of changes) that have since followed, as well as what made headlines in credit card news this month.
Bank of Canada Drops Overnight Lending Rate and Interest Rate Fallout Ensues
The biggest piece of mortgage news last month was, of course, the Bank of Canada’s (BoC) unexpected cut to its overnight lending rate. The BoC dropped its rate by 0.25%, from 1.00% down to 0.75%, for the first time since September 2010. As we mentioned in our post, the BoC’s announcement was a clear message for the banks to lower their Prime rates, in an attempt to shield highly indebted Canadians who were already feeling the negative impacts of what’s been happening in the oil industry. A lower Prime rate would have resulted in lower variable mortgage rates and smaller monthly mortgage payments. Unfortunately, the banks didn’t want to budge.
In fact, it took a historic six days for RBC and BMO to drop their Prime rates, before the other big banks finally followed suit – and they’ve still only lowered their rates by 0.15%, not the full 0.25% that the BoC did. While that’s big news in and of itself, some banks made further headlines with their decision to drop interest rates on savings products by the full 0.25% – and they did that within 1 day of the BoC announcement. The reason many banks claimed it took so long to lower their Prime rates at all, was because they didn’t want to see Canadians use that as a reason to take on more debt. (Funny how they were happy to take away our potential interest earned, though.)
As it turns out, the banks were right. First, we can vouch for this, as the number of searches for low mortgage rates immediately following the BoC interest rate cut was so high that our site crashed. Days later, results of a new survey showed that nearly half of all Canadians are planning on buying a home in the next five years, with more than 15% (millennials especially) stating that reduced mortgage rates would allow them to get into the housing market sooner than expected. So, perhaps the smaller cut to Prime rate was a good thing for those who planned to borrow more money (rather than take advantage of the savings and pay down debt sooner)?
The final piece of news, in all of this, is how this has affected all bank’s 5-year fixed posted rates (considered their “benchmark rate”). In order to borrow money to buy a home, you need to qualify for a bank’s 5-year fixed posted rate, which is typically much higher than what you’d actually pay; they do this to ensure you could still afford the monthly mortgage payment, if interest rates went up. So far, at least one bank has lowered its 5-year fixed posted rate, as a result of the BoC’s interest rate cut, and others are expected to follow. If the benchmark rate drops, it’ll become easier for Canadians to qualify for variable rate mortgages + fixed rate terms of less than 5 years. Bring on the borrowing.
At this rate, we’re probably right not to expect the interest rate hike we’d been promised until at least 2016. In fact, most of the industry professionals you ask will tell you that we should expect to see another interest rate cut first. I’ll be sure not to write our next BoC announcement post until the morning of… just in case it happens again!
In credit card news, Best Buy is ending its longtime relationship with Chase Bank and is nixing its Best Buy Rewards Zone Visa Card. The decision to cancel the card came after Best Buy announced it was moving its private-label credit card portfolio to Desjardins, effective April 15, 2015. The card was launched in 2008, and helped customers earn points for every $1 spent on the card + extra points for every $1 spent at Best Buy stores. If you’re a Best Buy Rewards Zone Visa cardholder, by now, you should’ve received a notice in the mail stating that your card will deactivate at the end of February. It’s unclear if Best Buy will launch a new Visa-branded credit card in Canada.
And, since we’re now in the business of sharing all things credit card-related, we want to make sure you’re aware of the newest phishing scam being reported across Canada. The fraudsters are making phone calls between 5-7:30am, in hopes they’ll catch you when you’re too tired to realize what they’re saying is a scam. After telling you your credit card was used without authorization the night before, they’ll ask for the first few digits of your card, then the last eight – all to, apparently, confirm your identity. Don’t fall for it! If you get a suspicious call, hang up and call your real credit card provider to ask if any suspicious activity has been reported on your account.