How does the Bank of Canada set the interest rate and how does the Bank Rate affect the mortgage interest rates?
The Bank of Canada's target rate is the interest rate that the Bank of Canada sets for the major financial institutions to use when lending one-day (overnight) funds to each other. As of April 10, 2016 the Bank Rate or Target Rate was 0.50%
The image on the right should show the current bank rate:
You will read in the news about this rate when the Bank of Canada makes a rate announcement. The target rate therefore sets the "overnight lending rate" and is often referred to as the Bank's key interest rate or key policy rate or the target rate.
Changes in the target rate influence other interest rates as well, such as those for consumer loans and mortgages.
Back in November 2000, the Bank introduced a system of eight "fixed" dates each year on which it announces whether or not it will change the target rate.
Strictly speaking, the Bank Rate and the Target Rate and the Bank of Canada Prime Rate are all the same, it's only the Prime Rate that is different, keep reading!
Bloomberg news has a fabulous interactive graph that you can see different historical views of prime rates and this can be seen here.
More information on rates
Bank Prime Rate means "best" and this is the rate that banks charge their absolute best customers for loans, which is usually only other lending institutions.
Changes in the Bank of Canada prime rate influence changes in other interest rates, including variable interest rate mortgages. This "bank rate" rate fluctuates based on economic conditions.
Some mortgage companies offer interest rates starting at Prime minus .1% (or more) as an incentive to borrow from them! These are known as "SUB PRIME" Mortgages and we know what happened in the US when too many sub-prime mortgages were given out in the mid 2000's One of the dangers with sub-prime mortgages is when they come due too early in the mortgage term and rates have increased, it's difficult to make the change to much larger payments. Read more about Sub-Prime Mortgages
Partial Source: Bank of Canada
Latest Overnight Rate Forecast
The Bank of Canada's overnight target has a direct impact on variable mortgage rates.
Historic Prime rates
You may continue
to read the information on this page, and maybe you
want to read about rates back in the mid 2000's
Does the Bank of Canada set all interest rates?
Banks rely on the bond market to raise money for those kinds of mortgages. Interest rates on the bond market can move up or down more frequently than the prime rate because the bond market is far more sensitive to market fluctuations. Rates move when traders believe the central bank may be about to increase – or reduce – interest rates. You can find more about this and other Bank of Canada Monetary policies at Bank of Canada. This information is mostly from cbc.ca/news As of April 10, 2016 the Bank Prime Target Rate was 0.50%
If you have any questions about bank rates or mortgage rates please
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