Global interest rates have dropped all over the world amid an economic growth freeze brought on by social distancing. The Bank of Canada reacted quickly by lowering its key interest rate to support the economy. In a rare move, they cut the interest rate by half a percentage point. So what do you need to know about the newly lowered interest rate? Read on, we’ve got you covered!
You Could Qualify for a Higher Mortgage
If you’re thinking of buying a house, this year might be a good time. With changes to the stress test and the lowered interest rates, the minimum you’ll have to prove you can afford could fall by up to 50 basis points. That means you could qualify for a mortgage that’s 5% to 7% higher. If you were previously approved for $900,000, you could now be eligible for $945,000.
The Real Estate Market Becomes Bullish
While people practice social distancing and business has slowed, the Bank of Canada lowered the interest rate to bolster consumer confidence and the housing market. This makes the real estate market bullish. Since real estate is already a hot commodity, we could potentially see the value of homes rise.
Your Variable Interest Rate Will Fall
Typically, 5-year fixed rates were more popular than variable interest rates. However, with the newly lowered interest rate, variable rates are now some of the lowest uninsured rates in the country. For instance, in Ontario, the best uninsured variable rate is a mere 2.25%. However, this rate could go as low as 1.50% (not a prediction, just a possibility). If your mortgage uses a variable rate, you could see your payments fall by approximately $24 per $100,000 of mortgage balance.
You’ll Pay More Principal and Less Interest
If your mortgage uses a fixed-rate, you won’t see a change in monthly borrowing costs, but you will still reap some reward. Now more of your monthly mortgage payment will be applied towards the principal and less toward the interest you owe the bank.
Although this is a stressful time for many, the lowered interest rate might provide some relief for homeowners and those thinking of buying or selling. The Bank of Canada’s interest rate cut could help you qualify for a higher mortgage while also reducing the amount of interest you pay. For more helpful information, visit our blog!