__________________NEGATIVE INTEREST RATES IN CANADA
Lately in the Financial News is the talk of Negative interest rates around the world. At Robert Floris’ Mortgage Architects office in Hamilton we like to write as if roles were reversed and what we would want to know. I will try to explain in easy terms how this would affect the average Canadian.
WHAT ARE NEGATIVE INTEREST RATES?
It basically means that the bank would actually charge you to hold money as a deposit. Right now, the bank is essentially paying us nothing to hold our funds.
CONSEQUENCES OF NEGATIVE INTEREST RATES
The average Canadian will most likely take out their money and do one several things. Many people will take their funds and put them in their mattress. Others will take some form of risk like investments such as stocks, bonds and even real estate.
HOW WOULD THIS AFFECT HOMEBUYERS?
Canadians would not be greatly affected by negative rates since mortgage rates are based upon the bond rates. Banks would still try to make their profit level so in actuality they will make more money since they are not paying interest on clients’ funds. Mortgage rates should remain low and in fact Canadians will continue to purchase a tangible asset like a home.
OTHER AFFECTS OF NEGATIVE INTEREST RATES
If the Bank of Canada implements lower interest rates, our dollar would be greatly affected. The Canadian dollar will continue to go down but hopefully this will lead our manufacturing sector to economic growth.
Can the Bank of Canada actually lower rates to below zero? Yes, if our economy continues to drag, this can happen. Europe has already experimented with negative rates. The average Canadian will adjust and we will continue on. For the average pension, it is a very sad time. They are making nothing on the bank accounts and yet prices continue to increase. Homeowners or homebuyer will see little or no effect.