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  • What the Bank of Canada’s Lower Rate Really Means

  • The mortgage holders of variable rates were all happy this Wednesday as the Bank of Canada cut it’s overnight lending rate. And why not! Who wants to pay more on a mortgage? For these Canadians, the news of the cheaper rates is a reason to celebrate. But for the other Canadians, this is another sign to be careful.

    “While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment”. These are words from a statement from the Bank of Canada’s governor, Stephen Poloz. What does this political double talk mean? At Robert Floris’ Mortgage Architects office here in Hamilton, we will explain this using normal language.

    I really hope for a happy ending but I am concerned for all Canadians to be vigilant and prudent. Our Bank of Canada Governor has lowered rates because our economy is not growing. In fact, it is slowing down in a very concerning fashion. Lowering will hopefully get Canadians to begin to spend more. Remember that our economy is based on growth. Well, we are not growing. In fact, Canada may have experienced negative growth in the first half year. If it is not growing, we would see a recession at a very bad time. If a recession does occur, people will lose their jobs at a time when we are at the highest level of personal debt. As well, it will hurt the housing market,  if you do not have a job, you will not be purchasing a home. Could this start a correction in housing prices? Lowering rates at this point will continue to have Canadians to further borrowing where consumers are carrying near record debt loads. I would hate to see home purchasers buying when the mortgage rates are so low and have no where to go but up and the home prices are at record levels. Here at Robert Floris’ Mortgage Architects office, we are concerned for all of our clients. When Royal LePage (one of Canada’s leading real estate companies) says that they are worried and that they are in but the business of selling homes, we should all pay attention. They believe that an interest rate cut is very inappropriate at this time. Let’s hope for the best for our great country.

    Robert Floris is an independent mortgage broker at Mortgage Architects in Hamilton, Ontario.

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