Bank of Canada is holding steady on the key rate of 0.25%. It’s not very shocking, since the promise was to keep it low until at least June 2010. What is surprising is how many Canadians are breathing a sigh of relief, believing this will keep mortgages at the current record low rates.
If you’re one of them, I have news for you. Banks and mortgage companies do what’s best for them, not what’s best for you. That being said, Canadian lenders have set a precedent by adjusting their rates when Bank of Canada makes a move. It adds to the illusion that the two rates are somehow connected. While the Bank of Canada rate may have some influence on mortgage rates, it really comes down to the banks themselves, and of-course, profitability.
Competition on big-ticket finance lending, such as a mortgage is fierce, and hunger for business, is what’s actually keeping mortgage rates down. At some point, one of the major Canadian banks will bravely increase their mortgage rate. When the increase does not result in ruination, the rest will follow the lead.
On the flip side, a little more profit from lending means financial institutions can pay a little more interest on savings accounts. So enjoy the current mortgage rates, just don’t get used to them.
