This morning marked the eighth interest rate announcement of the year by the Bank of Canada. Usually we don’t see the eighth announcement until December, but given that the BOC had two unscheduled rate announcements back in March, we’ve hit the eighth announcement early this year. Yay.

In most years, there are eight interest rate announcements in total. As there will be two more before the end of this year, we’ll see a total of ten in 2020. The next being on October 28th, with the final rate announcement occurring on December 9th.

 

This Morning’s Bank of Canada Announcement

The BOC confirmed this morning that they will be maintaining their overnight rate, which is what mortgage lenders use to set their prime rates. We can anticipate the exact same result for at least the next two years, so I wouldn’t expect any ‘edge–of–your–seat’ excitement surrounding these announcements anytime soon.

The BOC interest rate announcements are of interest to those with variable rate mortgages and Home Equity Lines of Credit (HELOCs). They do not have any direct effect on fixed rate mortgage rates, which move independently of the BOC rate. While there is no direct influence, the BOC announcements can sometimes have an indirect effect on them. It’s also possible that we could see fixed rates move in the opposite direction, which became evident when the BOC made an unscheduled rate announcement back on March 13th, 2020, unexpectedly slashed their rate by 0.50%. The bond yields started spiking in the opposite direction. As fixed mortgage rates are largely influenced by bond yields, this resulted in immediate increases to fixed mortgage rates across the board.

 

Mortgage Rates Reach New Historical Lows

I’ve been saying for months that mortgage rates will continue to drop. They reached new historical lows earlier this summer when 5 year fixed rates broke below the 2% threshold for the first time. Fast forward to today where any rate over 2% would now be considered high.

A 5 year fixed rate at 1.69% is almost ridiculous. Believe it or not, there is still room for rates to fall even further. A couple of months ago, I mentioned that 5 year fixed rates would start heading down towards 1.50% (they were 1.89% at the time). It’s possible that we may see them bottom out at this level within the next couple of months. Time will tell of course.

The discounts on variable rate mortgages have also increased, resulting in rates as low as prime -0.85% (1.60%).* As with fixed mortgage rates, it’s likely will see variable rate mortgages move

a little lower as well. Prime rate is not expected to change, however we can expect to see deeper discounts off prime, resulting in lower rates. Anything can happen of course.

 

*The lowest mortgage rates are available for insured mortgages (less than 20% down payment), or those with 35% or greater down payment / equity. Home value must be under $1 million OR home must have been purchased prior to November 30th, 2016. There are some exceptions, so please reach out to us to find out the lowest mortgage rate you would be eligible for.