If you haven’t purchased a home before, you may be confused how the overnight rate could help the Toronto Real Estate market. Here’s a brief overview of how it directly affects the Real Estate and mortgage industry in Canada.
What is the Overnight Rate?
The Bank of Canada‘s Overnight Rate, is the interest rate at which Banks lend between themselves. Banker’s also refer to this as the Policy Interest Rate. This rate can directly affect posted rates of mortgages & consumer loans. It also affects the price of the Canadian Dollar.
A lower rate can make the borrowing of funds more affordable. This provides incentive for consumers and can stimulate the economy.
When does the Overnight Rate Change?
The rate can change during 8 predetermined dates in the Calendar Year. An economic report accompanies the rate change, giving justification to the decision.
In extreme circumstances, the Bank of Canada can issue emergency rate changes, such as during the COVID-19 pandemic.
How does it affect Mortgage Rates?
A lower overnight rate can usually cause mortgage rates in Canada to fall. However, in circumstances where banks crave liquidity, the rate can have little to no effect on mortgage rates in Canada.
With the recent COVID-19 outbreak, rates rose slightly at first in an effort to account for the risk of lending money to those who are facing the potential of lost income. An lower rate allows easier ‘settling of account’ for the bank, inciting the borrowing and exchange of money between the financial institutions. This does not always affect consumers looking to borrow money long-term from a bank.
Have a question about the Overnight rate and how it might affect your home purchasing or selling goals? Contact Us today.