Relax! A Steady, Low Interest Rate is a Good Thing!

Maybe it’s because we’re always looking for the catch, waiting for the other shoe to drop. Maybe by nature, we as Canadians really are a pessimistic bunch. The most pessimistic among us will tell you, that it’s because we’re realists. Whatever the reason, it’s less than one week since The Bank of Canada has announced that they would keep interest rates low, right where they are now as a matter of fact, and instead of rejoicing, what are we doing? Worrying about what that will do to our economy. How much will we borrow? Are we going to send ourselves right back into a recession?
It’s a reasonable question, even for the few optimists that are out there. The rate goes down, and people run out getting second mortgages, HELOCs, and home equity loans. Many of these people can’t afford it, but the rate is so low and the deal on the mortgage or the loan so good, that they simply can’t resist. This is how we got ourselves into a little bit of trouble a few years ago; and how the States got themselves into a bunch of trouble that they’re still trying to get out of. But, we needn’t worry. Just look back to the beginning of the year, when tighter mortgage rules were imposed to stop that from happening.
It was in January when Jim Flaherty announced that mortgage insurance would no longer be provided for HELOCs. People were in a frenzy, thinking that it would make borrowing out of reach for many Canadians. And in fact, it sort of did. The rate of borrowing went way down and interestingly, our economy went up and up and up. Housing prices didn’t drop; in fact, they went up. And housing markets didn’t cool; for the most part, they got hotter.
The lesson to be learned is that we should relax, and enjoy the low interest rate that we currently have. The Bank of Canada has announced that it’s not going anywhere for some time; and it’s not the first time the announcement has been made. In the past, the Canadian economy did not crumble, borrowers did not flood the banks, and the housing market was not thrown into turbulence. The steady, low interest rate has does nothing but help us in recent history. And there’s no reason to think that it won’t do so in the near future as well.