Canada

Canadian Household Debt Gets Biggest Interest Rate Drop Since The Financial Crisis

Canadian debt is becoming very cheap, very rapidly – and it’s not a great sign. Bank of Canada (BoC) data shows the effective interest rate paid by households fell to a monthly year low on March 20. The decline from a year ago is the fastest we’ve seen rates drop during this period, since the Financial Crisis.

Canadian Household Effective Interest Rate

The household effective interest rate is an index of what consumers pay to service debt. The index is created using both consumer and mortgage rates, at both the posted and discount rate. The effective rate is what people are paying, as opposed to what is advertised. Since it’s a weighted index, it doesn’t give you the rate of a specific product. It does however, give us a better idea of where lending is heading.

Canadian Households See Rates Fall Back 2 Years

The effective rate of interest paid by households is dropping very quickly. The rate fell to 3.24% for the week ending March 22, down 12.43% from the month before This represents a decline of 18.79% from last year. If that seems like a big drop, it is – we haven’t seen something like this outside of a global financial crisis.

Canadian Household Effective Interest 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.

This Was The Biggest Drop Since The Financial Crisis

The rate wiped out increases made over the past couple of years, and is the biggest drop in over a decade. The 3.24% effective interest rate is the lowest it has been since July 2017. The decline for the week is also something Canadians haven’t seen since 2009. The market went from booming and needing higher rates to cool it, to emergency cuts on a dime.

Canadian Household Borrowing Rate Change

The 12 month percent change for the effective interest rate households paid on March 20.

Source: Bank of Canada, Better Dwelling.

Is this good or bad? Large rate drops are often a lifeline thrown to households to get a little breathing room. During good times, a low interest rate can cause asset prices to soar. However, more often than not, a big cut is a negative market event.

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4 Comments

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  • Marc 2 months ago

    I’m going to start a financial coaching business, that is going to force people to just write “Rate cuts are negative events” repeatedly on a chalk board.

  • Fraser 2 months ago

    Hang on tight, the housing crash coming to this country will shock most…it shouldn’t but it will. People are still in denial, lolllllll. Breathe, relax, get some sun…do not buy into fear, panic, anxiety coming from governments and all mainstream media right now., shut them off, NOW…they have shut down countries, are bankrupting private businesses for no reason at all…its sick that government can/is getting away with this…fear mongering… lies…… Use common sense…do not live in fear and do not believe anything coming from government…they are so full of it…Keep living, enjoying the things you do, but ya, stay clear of large crowds, large gatherings, sick people…again, common sense folks. We must get back to work or the world’s economies will be absolutely devastated. Anyone that doesn’t think we are heading for a recession/depression is dreaming, prepare accordingly. The real question is, how deep and how long? We cannot stay home for months. Those out there working/risking their lives won’t do it forever while others rack up the national debt, take government handouts (and more debt for future generations, not cool)…. Sick people need to get help, stay home, but the rest must work again, and soon.

  • Dave 2 months ago

    I can finally buy the Bentley I’ve always wanted.

  • DB 2 months ago

    There is a big white elephant in the room that 90 % of the media isn’t talking about….Real estate.
    Google it..very little said about it’s obvious situation coming our way. Lets see if this is the major shift that millennial’s need to get into the market. cost of housing is so high in Canada compared to wages, it needs to ex hail and this should be what does it. If not..Everyone already in has nothing to fear. This crises will tell us if RE is to big to fail and is the holy grail of this Gov’t..go figure.

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