Bank of Canada Holds Steady on Key Interest Rate

The Bank of Canada announced this morning that it will leave its key interest rate unchanged, a decision that was anticipated by many economists.

As a result of the Bank’s decision, lending institutions in Canada are expected to keep their prime lending rate steady. Variable-rate mortgages, variable-rate credit cards, and home equity lines of credit are typically linked to a lender’s prime rate.

Global subprime mortgage woes have led to fewer deals on variable-rate mortgages in Canada compared to a year ago. This time last year, borrowers with a solid credit rating could obtain a variable-rate mortgage with a discount of prime minus 0.9 per cent. Now, that discount is 0.6 per cent. “This doesn’t mean that borrowers should automatically go with a fixed-rate mortgage,” says Mark Olkowski, regional manager with Invis in London, ON. “At this point, the prime rate would have to rise considerably to make the current variable-rate mortgage options unattractive.”

For those wanting a variable-rate mortgage, the first step, advises Olkowski, is for prospective borrowers to get pre-approved for a variable-rate discount, to protect themselves if discounts off of the prime rate continue to shrink in the next few months.

Pricing for fixed-rate mortgages is not directly affected by today’s announcement. For those seeking long-term stability, in recent weeks there have been some rate drops for fixed mortgages with terms longer than five-years.