Canada

Canadian Households See Borrowing Rates Fall To 14 Month Low

Canadian households are getting access to cheaper credit, after a brief rise in rates. Bank of Canada (BoC) data shows the interest rate households paying fell in September. Borrowing rates have been  falling since hitting a multi-year high earlier this year. Currently they’re still higher than they were during peak real estate price growth. However, they are trending lower.

Effective Interest Rate For Households

The effective interest rate is a weighted-average index of interest paid by households. The rate is a combination of posted and discount rates obtained from lenders. Both consumer and mortgage loans are weighted in the average. While not the actual rate provided by a lender, it helps us understand the interest actually paid. Effective rates give a better idea of where rate are heading, as opposed to the posted 5-year fixed no one pays.

Canadian Households Are Paying Lower Interest Rates

Households are paying lower interest rates. The effective interest rate reached 3.7% on September 6, down 0.8% from the month before. The drop brings the interest rate 2.89% lower than it was during the same week last year. Effective rates are down 7.96% from the peak reached earlier this year. The rate is currently the lowest its been since June 2018, and was a very quick decline.

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.

Canadian Effective Interest Rates Are Trending Lower

The effective borrowing rate is falling, after a couple of years of trending higher. The rate is down 2.89% from last year, after rising 14.1% from the year before that. Effective rates are still 13.1% higher than two years ago, but once again – they’ve been trending lower. Lender competition must be fierce for the relatively low amount of borrower demand.

Canadian Household Borrowing Rate Change

The 12 month percent change for the effective interest rate households paid on September 6th.

Source: Bank of Canada, Better Dwelling.

Borrowing rates are falling fast. The effective rate fell very quickly after hitting a multi-year high in March. Even with the drop, rates are still higher than they were just two-years ago.

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9 Comments

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  • Trader Jim 1 month ago

    In Canada, if oil prices are rising while rates are falling – look out. This isn’t 2015. 😬

    • Joseph 1 month ago

      Trader Jim, I can’t put two and two together. Please expand on your comment.

      If oil prices rise and rates fall, the lower rate should offset the rise in oil prices, no?

      Very much appreciated.

      • JM 1 month ago

        If Oil Prices are rising then inflation will start to rise very fast. The best way to counter rising inflation is to raise interest rates. If the Bank of Canada and world banks decide to keep lowering rates then inflation will sky rocket faster or the banks will need to start raising rates again to counter inflation

        Since 40 % or more of Canadian families are less then $200 a month from scraping by on paying they’re bills, having oil, gas, food and others costs going up will hurt them more or the banks can start raising interest rates causing a large amount of home owners into foreclosure in the following years since a large amount won’t be able to handle the higher interest when they refinance they’re mortgages in coming years.
        Only way out of this is for jobs to start raising wages faster then inflation at the same time keep producing more then 200 to 300 K jobs a year to counter inflation numbers or something in the fragile economy will crack and lead to a chain reaction similar to the US about 11 years ago. At the end of the day, nobody knows when the recession will start, but if it does, the contingency numbers on the graph posted in a article a few days ago will most likely be much higher in Canada then they were in 2009.

        • Moss 1 month ago

          Couldn’t agree more JM. Falling rates won’t be able to spur growth as Canadians are already completely tapped-out debt-wise. At a debt to income ratio of 178%, there’s simply no more room in people’s budgets to add more debt servicing. And, as you rightly pointed out, eventually the music will stop no matter what we do. Either rising interest rates or runaway inflation (pick your poison) will push people to either sell assets (namely houses) or simply stop buying anything but necessities in order to stop themselves from having to do the former.

          To borrow a line from HBO’s Chernobyl, “every lie we tell incurs a debt to the truth. Sooner or later, that debt is paid.” We’ve all known that the economic fundamentals haven’t supported ANY of this historically high growth in real estate values, yet just because nothing has happened YET, people are happy to continue playing the game in the hopes that everything will keep going up forever. The fact of the matter is this – when people borrow more than they can pay back, it always catches up with them. Sometimes it takes one year and sometimes it takes ten. At some point, one of the cards will fall – likely a wider recession caused by slowed consumer spending that is triggered by further increases in cost of living (inflation) or rising rates (debt servicing) – that will collapse the Canadian economy and finally allow us to face the truth. And the truth is that greed, poor monetary and governmental policy, and a complete lack of financial discipline from the Canadian public has led us into a Great Recession-style debt bubble whose pop will likely lead Canada into our very own “lost decade” like Japan in the 1990’s.

    • John 1 month ago

      How come? Won’t that help rebalance GDP toward oil like pre- 2008?

  • GB 1 month ago

    It seems to be helping home sales in Toronto.

    In the last 4 weeks, detached sales are up 30% vs last year. While inventory is virtually flat.

    647 sales (last 4 weeks) with 2220 listings

    Just the facts

    • Asterix1 1 month ago

      Yet, single detached prices in Toronto and GTA are still falling. Higher sales does not equal higher prices.

    • Sophia 1 month ago

      People are trying to sell before it collapses.

  • Rob 1 month ago

    Many comments are spot on, the amount of debt by all, governments, Corporations and the public is totally out of control. Unfortunately the winners when the massive bubble burts will be the rich, the folks with 10 million up who are liguid. They will buy up the houses and rent them back to the former owners. We live in a society of keeping up with the Jones. But its the middle glass wno use debt to have the fancy houses, cars, vacations, appliances etc etc. I have no debt and live in a 50’s bunglow, drive a used vehicle. All of its very comfortable, my vehicle is 10 years old and looks & runs like new, my credi cards are paid in full each month. No matter what happens in the economy my family will still be able to live as we do now. People have to get back to using common sense, stop the I want it all atitude before they have the money for it. The banks & retailers are a lot to blame. I receive 5 pieces of mail a week preapproving me for lines of credit, credit cards, dont pay deals, vacations fly now pay later. I quess what i am trying to say is our world has completely gone to hell in a hand basket.

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