Canadian Banks Are Trying To Stimulate Borrowing By Dropping Rates, Down 23 BPS

Canadians swimming in debt can rejoice – they’re getting the benefits of a cut without the rate cut. Bank of Canada (BoC) numbers show the effective household borrowing rate dropped to a multi-month low the week of June 14. The typical household is still paying more than last year, but rates are down 23 bps since the March peak.

Effective Household Interest Rates

The effective household interest rate is the typical rate households pay on a loan. The value is created from a weighted index of actual loan data, provided by lenders. It includes both consumer loans and mortgages, at both the posted and discount rate. Inclusion of the latter is important, since only suckers pay the posted rate. Only using the posted rate would be like looking at real estate ask prices, and ignoring sold prices.

Households Are Paying Over 2% More Interest Than Last Year

The weekly effective rate for a typical household fell on the month, but is still up from last year. The rate reached 3.79% on June 14, down 0.52% from the month before. This represents a decline of 2.71% from the same time last year. Though it may be higher, lenders have been on a slashing spree recently to try to stimulate credit growth.

Canadian Household Borrowing Rate

The Bank of Canada’s weekly effective borrowing rate for Canadian households. The number is a weighted average of interest rates on mortgage and consumer credit products.

Source: Bank of Canada, Better Dwelling.

Household Borrowing Rates Are Down Over 5% From Peak

The current effective household borrowing rate is down considerably from the recent peak reached a few months ago. Rates in mid-June were down 5.72% from the peak hit on the week of March 8th. That works out to a 23 bps cut, which is about the impact borrowers would experience with a BoC rate cut. Rate cut fun, without the actual cut. The typical household borrowing rate is now back to the same level it was in August 2018.

Canadian Household Borrowing Rate Change

The 12 month percent change for the effective interest rate households faced on Jun 14.

Source: Bank of Canada, Better Dwelling.

Lenders slashing rates is working, just not enough to help prices in most real estate markets. Since the cuts, Canadian household credit has been experiencing mild acceleration. However, the acceleration is largely in consumer credit, not mortgages. Meanwhile, Canadian home price growth has continued to fall to the lowest level since the Great Recession.

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  • Ethan Wu 4 years ago

    If the BOC didn’t make the cut, but the banks are – they’re effectively taking it out of their own profits, and hoping to make it up on volume. Something interesting to think about.

    • Mortgage Guy 4 years ago

      HSBC posting 10 year fixed rates at 3.74%. They certainly aren’t seeing an increase in the near term for Canadians.

      • MH 4 years ago

        @Mortgage Guy, thanks for your contributions here. Please disregard the noise.

        • Mortgage Guy 4 years ago

          Thanks. There’s a lot of great discussion that happens when MM doesn’t show up with inane hostility.

          Business must be slow for him, if he’s spending all day on the comment section to tell people things are fine, they’ll be as rich as his anonymous self, that has a different story every month about how he first got into the market and made money.

          From his lack of distaste for the construction industry yesterday, but passion for real estate prices, he’s clearly a small scale developer. Most of the industry recognizes how important well paid construction jobs are to the economy.

          • John 4 years ago

            Thank you for your contributions @Mortgage Guy

            I usually see MM read a couple lines and move on. Most of his comments aren’t worth the time.

    • Chester Pape 4 years ago

      They’re probably anticipation foreclosures, and baiting gullible Millenials to buy a starter home while their salaries aren’t increasing in terms of purchasing power is a perfect recipe to own their mortgages and seize their homes once SHTF.

  • Chester Pape 4 years ago

    Boomers have to maintain the price floor of their termite infested bungalow at Markham Road & Steeles Avenue East for at least $1,000,000 at all costs, even if it means a currency devaluation from rate cuts.

    #Gen Z
    #work for free interns
    #$100k OSAP debt but employers want us to work for free
    #Greedy Boomers
    #Snowflake millenials who are willing work for free!
    #Boomers paid one year salary for their bungalows, but we have to work for free to pay a million dollars for theirs!

    • Paul 4 years ago


      While rising inflation eats away at there money. New builds left Unsold.

  • Joseph 4 years ago

    Regarding yesterday’s post on Betterdwelling.

    I’m glad that article was bought to light. But I slightly question the methodology behind the numbers. I did some digging on where ADP’s numbers came from. Their report can be found here:

    Just go to the Press Release PDF.

    The piece that makes me wonder is a one-liner on the May Report, “The April total of jobs added was revised down from 61,700 to 24,000.”

    That’s a significant difference; for the worse.

    If April’s numbers were significantly less-positive than initially reported, we may be on a much bugger downhill trajectory than was anticipated after the April ADP report was released.

    Further, come July release time, I’d like to see if May’s numbers also get adjusted… to even bleaker amounts.

    • Taggary 4 years ago

      The more questionable methodology was the Statistics Canada survey, as pointed out by capital economics. They reported 60,000+ jobs created were people starting their own businesses. That makes over 100% of the gains. The survey is 50,000 when they receive all responses.

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