Canadian Borrowing Rates Are Higher This Year, But Dropping Fast

Canadian households are facing higher borrowing rates, but they’re coming down. Bank of Canada (BoC) numbers show the effective household borrowing rate was higher than last year, as of April 27. Over the past few weeks however, rates have been on a fast slide since peaking in March.

Effective Household Borrowing Rate

The effective household borrowing rate is the typical interest rate faced by households. It’s not an actual rate you can find, but a weighted index of consumer and mortgage loan rates. The rate is composed of both posted rates (the ones you see) and discount rates ( the ones you don’t). The actual data is drawn from lender files, which gives us insights into what people are actually paying, not what they’re being offered. The result is great for understanding the direction of household loans rate trends. Isn’t everyone into those?

Household Borrowing Rates Are Higher, But Falling

Effective household rates are higher, but dropping very fast over the past few weeks. The effective rate hit 3.88% on April 26, down 2.26% from one month before. Even with the drop, the rate remains 6.88% higher than the same time last year. Dropping into the busy spring season is typical, but even so – this is a steep decline for such a short period. The rate is now back to the lowest level since October of last year.

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.

One of The Largest Annual Increases In Recent Time

Despite the steep drop, the rates still made one of the fastest annual increases seen in recent time. The annual pace of growth at 6.88% is second largest since at least 2014. It doesn’t seem like a lot compared to last year’s 18.62% hike, but it will have an impact. The impact is most obvious with larger asset financing, like mortgages.

Canadian Household Borrowing Rate Change

The 12 month percent change for the effective interest rate households faced on April 27.

Source: Bank of Canada, Better Dwelling.

Too abstract? Let’s go over an example of maximum mortgage at the rates discussed. Assume a household with $100,000, and we’ll exclude insurance, taxes, and the stress test. At today’s effective rate of 3.88%, the household could have a maximum mortgage of ~$561,000, about 0.89% (~$5k) more than last month. Compared to the 3.63% rate last year, that borrowing power has still dropped 2.6% (~$15k in the example). Today, compared to the same time in 2017, you’re looking at a decline of 5.88% (~$51k). These are only example calculations, so run a more comprehensive one with a broker. The decline in buyer power would be similar though, all other factors the same.

Considering the overnight rate hasn’t moved, this is a big decline for such a short-period. The larger than typical seasonal movement may help increase near term loan demand. The size of those loans won’t be able to grow as quickly as in past years however. Even with the drop over the past few weeks, rates are still higher than last year.

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  • Ian 5 years ago

    Noticing a lot of people in Canada misinterpreting a BOC cut. They’re suppose to cut when the outlook for the economy deteriorates.

    Australia gets it.

    • Mishka 5 years ago

      Not true, low rates directly influence prices. Look at the 2015 cut, and spike.

      • Ian 5 years ago

        The 2015 hike was based on weakness in Alberta, not in Ontario or BC. Cutting while the economy was doing well is why the Canadian peso lost almost 30% over that period, and inflated housing.

        The 2015 cut was Poloz trying to pull a Greenspan circa mid-90s, but may end up being the biggest boondoggle in Canadian monetary policy since the early 80s.

        • Joseph 5 years ago

          Ian, I know interests rates were insanely high in the early 80’s, but for my own knowledge, can you expand on what the gov did wrong at that time (that, I assume, caused the interest rate increase)? Or in other words, what was the boondoggle back then?

          • Smaug 5 years ago

            The interest rates of the early 80s were necessary due to high inflation. Once they killed inflation, the rates came down and the economy started to grow again. It wasn’t easy. It was a devastating recession with mass insolvencies and bankruptcies. But there was no other option. Some Keynesians argue to this day that the inflation was due to oil prices and that the high rates were unnecessary. Such arguments can be ignored. Inflation took off starting in 1965, a full 8 years before the first oil crisis in 1973. The oil price shocks of 1973 and 1979 took place in an already inflationary environment. These prices shocks were not the cause of inflation, merely a single aspect of a much larger inflationary process.

  • Ahmid 5 years ago

    Good time to go variable?

  • Paul 5 years ago

    Just keep an eye on GDP stats being reported by government.

    Better mortgage rates later 2019


    GTA April numbers are in.
    MOI dropped from 2.2 to 2.0
    Price up 5% yoy
    Sales up 17%
    New listings up.
    When MOI drop below 2.0 we will see a spike in prices.

  • Folkswagon 5 years ago

    Does anyone know why on the MLS, there are 2 listings for each home for sale.?They also have different listing numbers. What is the reason for this? I don’t recall seeing this so prevalently. I used to see the odd double listing, but now it is the case for most homes on the MLS.

    • Rob 5 years ago

      Example, when one house is on 3 different listings and that house sells. The stats will report 3 sales, not 1 sale. This is the whole problem with unregulated RE boards. The government relies on CREA and the boards for stats. This is one of many reasons RE prices have gotten to these levels.
      What they will say is that a single house on multiple listings would get more exposure to potential buyers. I believe that’s nonsense and misleading.
      You should take pictures of it and report it to multiple media outlets. I doubt any of them would investigate because they rely heavily on RE advertising revenue.

  • cto 5 years ago

    all good numbers I see their, !
    thanks for the absolute evidence that the stress test was generally ineffective at best and if anything, needs to be strengthened, at least for Ontario.
    Based on your observations it looks like a good time to start NORMALIZING interest rates from their current emergency lows.
    Rates need to be at 4-5% to be ready for the next recession downdraft, so…based on current housing market observations brought to you by RE EXPERT EXTRAORDINAIRE, this is a good time to start raising again, and don’t stop until we reach the “normal non-recessionary rates” that we really should be at…. now.

    • Mmr 5 years ago

      Rates are still too high. It should be below 2 percent and ford government should withdraw unjustified 15 percent tax on foriegn ownership. It’s free market not Soviet union.

      • Smaug 5 years ago

        Less than 2% interest means the cost of money will fall to or below the rate of inflation. Free markets don’t exist with free money. Try earning your money instead of expecting the central bank to print up as much as you feel like borrowing. This isn’t the Soviet Union after all.

      • carlton 5 years ago

        yeah canadians need higher home prices and more debt! that will help us!


      I am hoping the boc keeps interest rates low and extends credit. Then everybody wins and real estate and the economy can keep rolling.
      You cant say you didnt have enough time to buy in.
      Something tells me they will extend credit and then it could be another cycle (10 years or so) until the next possible crash. Imagine how much houses will be worth then fml

      • neo 5 years ago

        Everybody wins? Have you not heard of inflation? How does everybody win when lower rates weakens your currency, the majority of our purchases are from imports and domestic purchases like homes increase. Not to mention taxes go up along with cost of living. Everybody loses.

        • RE EXPERT EXTRAORDINAIRE 5 years ago

          I’ve heard of inflation once before and it didnt seem to get out of control when house prices more than doubled 2013 to 2017. What happened there?

          • Smaug 5 years ago

            “…when house prices more than doubled 2013 to 2017.”

            That’s called inflation. Duh. Just because the CPI doesn’t capture inflation in the housing market doesn’t mean it’s not inflation.

  • Rana 5 years ago

    Toronto sales r up 18% box has no choice except to hike the interest rates

  • Rob 5 years ago

    I agree that rates should go up. But rates are not solely based on RE mortgage costs; initially rate drops allowed corporations to pay down debt and take on new capital initiatives and also to create liquidity post global recession (financial crises).

    Foreign investment is not a right but serves the Canadian economy. I’m sure foreign regulators do not reciprocate. Actually, how is foreign money leaving such a strict country to begin with.
    Not Soviet but democracy has had enough and has decided somethings so dear to our way of life is not for sale (profit) anymore.

  • SCE 5 years ago

    Canada’s overall housing market remains solid and should return to growth later this year as previously frothy markets in Toronto and Vancouver stabilize, Bank of Canada Governor Stephen Poloz said.

    When will you guys ever learn? The housing market isn’t crashing OK???

    Why don’t you guys be like your fearless leader Bluetheimpala and just lift a property? Dude goes on about market crashes everyday. Well at least he bought a place recently so he’s hedged against his views!

    • Joseph 5 years ago

      In Washington, Poloz did provide some insight into the Bank of Canada’s recent change in tone, saying it was a case of “confidence in the outlook eroding as we got a series of data points that were on the wrong side of things.”

      Given the weaker data, Poloz said governing council became a “little less confident we would get anywhere close to neutral range in the near term so we better tone down that language to make sure markets understand that that’s not a destination like right away. “We’re trying to inject more conditionality into it,” the governor said.

      While markets are pricing in a small chance of a cut over the next year, Poloz said investor expectations seem to be consistent with a belief interest rates will be “on hold for a while.”

      “What’s a while, I don’t know,” he said. “Once again, that’s a data dependent notion.”

      This guy? This guy right here is who you’re quoting? Might be the most random reason he’s kept rates low; maybe his mortgages are coming up for renewal later this year. The guy doesn’t impress me at all. At the time critical questions are asked, he does’t seem to have an understanding into his choice of action.

      • SCE 5 years ago

        ok buddy. He’s the head of the central bank.. and who are you?

      • Bob Url 5 years ago

        Watch the amp links for Google super-tracking, post link directly if you value the reader of your posts privacy.

  • Gear74 5 years ago

    SCE that’s a good one! I mentioned it one time already on this website. The leader of Blue bears was wining about the housing crash for years here but then goes and buy the house! Since then his tone changed – I read very mild comments from him.

  • Cto 5 years ago

    You bulls make me laugh!
    Crash, who expects a crash? There will be no crash. Except for Vancouver.
    …Of course.
    Unfortunately , what will happen, will probably be more agonizing for most than just ripping the Band-Aid off.
    I guarantee you that you can expect 2018/2019 conditions going forward.
    It’s likely condos will correct next maybe only 5 to 10% for the next two years.
    Nobody wants a freaking condo if you can buy a house for the same price. Generally, …Stagnation, stagnation, stagnation on a Perpetual basis. Eventually house prices and rents will come in line with people’s income.
    That’s normal logic. Sorry Bulls, sorry bears.
    Abnormal logic is expecting house prices to go up at intervals of 10% per year perpetually – funded by obscure measures like immigration and money laundering. And good luck with the wage increase to mystically support prices.
    Abnormal logic is thinking Our Idiot Central Banker will do the right thing and raise interest rates to where they should be right now because he is…. of course ….scared.
    So ….pick your evil.
    Put in measures that will rip the Band-Aid off now or let it slowly stagnate itself away like money invested in a GIC.


    I’ve heard of inflation once before and it didnt seem to get out of control when house prices more than doubled 2013 to 2017. What happened there?

  • cto 5 years ago


    Ya my house almost doubled in that time frame. (Toronto, 66 ft lot).
    By mid 2018 it likely lost 200 Gs. Kind of leveled off now,… but I expect it to loose another 100 or so…
    Not moving though, to me it’s little more than a place to live. I love our hood! if it goes up, great! if it goes down,…who cares…
    I know, I know, that’s a strange way of thinking these days, isn’t it.
    Right now, condos are having their little run. Happy times!!!


      Sounds good to me. Whatever works for you.
      Sounds like the market is starting to turn. You wont be down for long.

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