Bank of Canada Slashes Rates to Lowest Since 1950's

The Bank of Canada cut interest rates today, December 9th, by 75 basis points (0.75%) to a low 1.5% today. This leads us to believe that the Federal Bankers are worried and beginning to understand they have to adopt pro-active strategies in order to boost a flagging economy. Canadians have not seen these rates since the 1950's.

If the economy doesn't show signs of improving before the next Bank of Canada meeting, we can probably expect another 25 to 50 basis point cut at that time. If the banks follow up and pass on the full 75 basis points to their customers it will be a real windfall for people with variable rate mortgages or lines of credit. This will represent additional new savings of $750 for every $100,000 owed on a variable rate mortgage.

With a new variable rate mortgage averaging between $300,000 and $400,000 the annual savings will vary between $2,250 to $3,000 (just over $200 a month on average). People with variable rate mortgages will probably enjoy this low rate for months to come - perhaps as long as a year or until the economy starts to recover and inflationary trends start to decline. If you have a variable rate mortgage you will also benefit from lower rate fixed term mortgages when the time comes to lock in your mortgage plan.

This is a real win-win for home owners. The downside of a low Bank of Canada rate is that our dollar will most likely drop against the U.S. dollar in the short term, but this should change when oil creeps back up to around $80.00 a barrel and our Canadian commodity markets start rebounding.