Hey everyone! 

Since the start of the Covid-19 crisis, this has been an absolutely crazy year for all of us, including everyone involved in the financial sector. Canada's central bank has continued to drop it's policy rate as the crisis has evolved, in hopes of mitigating some of the economic destruction this crisis and lockdown has caused. They've now reached an 'overnight rate' of just 0.25%. This is the rate that influences the 'Prime Rate' that banks offer their customers for mortgages and loans. 

What this means for all of us is:

  • Prime rate has dropped to match this decrease (it's now at 2.45% for most banks/products).
  • A lower prime rate means a lower interest rate for variable-rate loans (mortgages, loans, lines of credit).
  • We are reaching the lower boundary of "acceptable" rates for the Bank of Canada. Soooo. it's not likely we'll see rates drop more, barring any new unforeseen circumstances.

All this to say that even during this incredibly difficult time, there is a small silver lining; since some people will be experience reduced interest rates. Now the real question is, what can you do to make the most of this? Well, here are a few ideas:

  • Refinance your existing mortgage. You could potentially get an even lower interest rate, reduce your payments, AND you may even get some extra funds to use towards paying off other higher interest debts  like credit cards, lines of credit, or personal loans. There's never a bad time to review this as an option. 
  • Consider increasing your regular mortgage payments. While interest rates are low, even more of your payment is going towards principal than ever before. Combine that with adding in some extra payments and you could shave years off your mortgage! 
  • Consider setting some extra money aside for a rainy day. If you've seen your mortgage payment drop because of this rate drop, then think about saving that extra money each month in a savings account or investment. Set it up automatically (automatic debit), so you won't miss it! This could add up to a lot of extra savings built up, until we see rates rise again. 

Most economists aren't predicting rates to start rising again for 1-2 more years. This means we could have a considerable amount of time still to make use of the interest savings you might be experiencing right now. Make the most of it! 

And for those who are interested, here's the update direct from the Bank of Canada 

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¼ percent. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent. This unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.

The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices. The pandemic-driven contraction has prompted decisive fiscal policy action in Canada to support individuals and businesses and to minimize any permanent damage to the structure of the economy.

The Bank is playing an important complementary role in this effort. Its interest rate setting cushions the impact of the shocks by easing the cost of borrowing. Its efforts to maintain the functioning of the financial system are helping keep credit available to people and companies. The intent of our decision today is to support the financial system in its central role of providing credit in the economy, and to lay the foundation for the economy’s return to normalcy.

The Bank’s efforts have been primarily focused on ensuring the availability of credit by providing liquidity to help markets continue to function.  To promote credit availability, the Bank has expanded its various term repo facilities. To preserve market function, the Bank is conducting Government of Canada bond buybacks and switches, purchases of Canada Mortgage Bonds and banker’s acceptances, and purchases of provincial money market instruments. All these additional measures have been detailed on the Bank’s website and will be extended or augmented as needed.