Bank of Canada sees rates on hold into 2023
In its most recent update, the Bank of Canada indicated it would hold its key interest rate until the economic slack is absorbed and the two-per-cent inflation target is substantially achieved. In its current projection, the bank doesn’t see that happening until 2023.
My immediate response is: let the borrowing begin. While lower rates will likely mean Canadians will pile on more debt, it can be good news for those who need it.
Unless policy changes, lower rates will absolutely continue to prop things up for homeowners and the real estate market. Going with either a fixed or variable rate are both good options, but the choice ultimately comes down to your tolerance for risk. A fixed rate will give you certainty while a variable rate will continue to provide support if rates go even lower. However, the bad news there is the economic recovery derails.
James Laird, co-founder of Ratehub.ca, suggests Canadians who plan to stay in their existing home for the long-term might consider a 10-year fixed rate, which is available at around three per cent and would guarantee their mortgage payment for an entire decade.
If you are locked into your mortgage, you may want to explore refinancing. However, it’s important you understand the penalty for breaking your current mortgage.
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But what about the financially vulnerable Canadians?
A recent survey by Credit Canada revealed two out of five Canadians have no idea what they will do when financial aid runs out. Overall, one-in-four Canadians (24 per cent) have used income supports such as the Canada Emergency Response Benefit (CERB) or Employment Insurance (EI). Meanwhile, nine per cent have used payment deferrals for expenses such as their car, mortgage, rent, lines of credit, and credit cards due to the COVID-19 pandemic.
Depending on the job market, those who are successful in finding help to pay the bills will be better off than those who are not.
According to Credit Canada, here’s how some Canadians hope to get by:
- One-in-10 will turn to traditional borrowing such as family loans, bank loans and credit cards
- Only two per cent will resort to payday loans or short-term lenders
- Another two per cent will seek professional help such as bankruptcy, insolvency or credit counselling
Here is where the glass is half-full to me: Lower rates for longer will be hugely beneficial to those that may have to borrow when the financial lifelines dry up. Sure, I would prefer to see the economy pick up so rates could go a little higher. But that’s unlikely happen in the short-term. So for those who need some form of rate certainty, the Bank of Canada is providing a lifeline in a different form.