The Bank of Canada (BOC) is Canada’s national bank. It’s a Crown corporation that operates independently of whatever political party is in power in Ottawa. The central bank exists to promote Canada’s economic stability and financial welfare.

You may already know the BOC issues the bank notes you tuck into your wallet, but did you know it indirectly determines the interest rate you pay on your mortgage or consumer debt, too?

How Lenders Set Interest Rates

While the BOC doesn’t set mortgage rates, credit card rates or any other consumer lending rates, it sets a target for the “overnight rate” (also known as the “policy interest rate”), which is what major financial institutions charge one another in their daily short term (or “overnight”) transactions. The big banks use the overnight rate ( currently targeted at 0.25 %) to set their prime lending rate, the interest rate they give to their best customers, (i.e. those with stellar credit and a solid income).

A variety of factors play into the interest rate you’ll pay for your mortgage, including:

• Your credit score;
• Your income;
• Is it a fixed or variable rate interest mortgage?
• Is it an open or closed mortgage?
• Do you have mortgage default insurance?
• Is it a primary mortgage, second mortgage, third mortgage or a reverse mortgage?

Check out this informative article by Bank of Canada , for more insights into the process.

What Does This Mean for Me?

Interest rates are low right now, so borrowing money to buy a house can be done “on the cheap.”

If you’re house-hunting in a hot market like Victoria, Toronto, Ottawa or Montreal, home prices won’t be dipping in 2020 ( so long, coronavirus-related price drops ), but you’ll find some great mortgage rates, given the lending climate the Bank of Canada has promoted.

If you own your own home and have no plans to move, now might be a good time to consider refinancing your mortgage. Making a switch in order to take advantage of today’s low interest rates could save you thousands of dollars over the next few years. 

Want to learn more? Reach out to 8Twelve’s team of skilled mortgage professionals. You can trust your 8Twelve Mortgage Strategist to help you get the best mortgage for your needs.