Rachel Surman • Jul 11, 2018
The Bank of Canada (BoC) raised its key interest rate from 1.25% to 1.50% on Wednesday. This is the bank’s fourth increase in the last year. Here’s what you need to know.
What is the key interest rate?
This interest rate is called the “Overnight Rate” and is what dictates the prime consumer lending rates of Canada’s “Big 6 Banks.” The prime rate is the base rate that banks and lenders use to set the interest on loans and other financial products.
Why did the rate increase?
The central bank noted that despite global trade disputes, the bank predicts Canadian growth will see more support from exports and business investments. Both were stronger than anticipated in the first three months of 2018. The BoC has its eye on the intensifying trade dispute between the U.S and China and warns that global “escalating trade tensions post considerable risks to the outlook.”
How does the rate increase affect mortgages?
The bank said recent data suggests housing markets are beginning to stabilize, following a weak start to 2018.
A fixed-rate mortgage offers a “locked-in” rate for a length of time and is not affected by the BoC’s rate increases. A variable mortgage, on the other hand, is linked to the prime rate. When the prime rate goes up, your rate and monthly payments may increase as well – depending on the type of variable mortgage you have.
How does this affect lending rates on personal loans?
Interest rates on personal loans depend on the individual and their credit score. However, borrowing from banks may become more expensive as the rates increase. With consumer debt at an all-time-high, some may consider a low-interest personal loan. Your interest rate won’t change, even if the key interest rate does.
Guided by incoming data, the BoC will take a gradual approach to policy adjustments. The BoC’s next scheduled increase is set for September 5th, 2018.
While the BoC’s rate increases may be out of your control, having a good credit score is something you can work on and improve over time. Your credit score may impact your rates on major financial products such as a mortgage or personal loan. Having a good credit score could make it easier (and cheaper!) to access these products and achieve your financial goals.
You may have heard that making on-time payments is the key to having a good credit score. But just how important is it to make your payments on time? If you’ve made the mistake of missing payments in the past, what can you do to help improve your credit score now?
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