Canadian Mortgage Rates, Oil Prices, and Bond Yields: How Low Can We Go? …and how long can we stay there?

For most Canadian homeowners and prospective home buyers, there’s only one thing that matters when it comes to mortgage rates: what they are, and where they’re going. Whether you’re looking to purchase a home or refinance the one you’re living in, those national rates have a big impact on what you can do and the decisions you make.

Understanding what influences mortgage rates—and thus what impacts your decision-making—is a little more complex, especially in today’s market. Falling oil prices have a big impact on the Canadian economy in a lot of ways, with both direct and indirect impacts on the mortgage rates available to Canadian consumers.

We’ll try to break it down and explain why a sluggish economy is likely to keep mortgage rates in Canada as low as they are—-and possibly even lower—for the foreseeable future.

First, the direct impact of falling oil prices is less money being pumped into the Canadian economy, a decent chunk of which is devoted to oil production. With a tighter money supply, the Bank of Canada is almost certain to keep the rate at which it lends to other banks low, and that means lower rates across the board.

Comments from Bank of Canada Deputy Governor Timothy Lane support this view, and a recent revision of expectations from American investment bank Morgan Stanley agrees, too. Less money in the economy means the Bank of Canada will need to act to keep things moving, and that means making it easy for banks and businesses to get the money they need. Lowering interest rates, or at the very least preventing them from climbing, is the way the Bank accomplishes that.

It’s not great news for investors, but for anyone looking to get a mortgage or refinance their home it means cheaper loans will be around for awhile.

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