Canadian Households See Interest Rates Drop, But The Trend Is Still Higher

Canadians are paying lower interest rates for borrowing than last year. Bank of Canada (BoC) data shows the effective interest rate has fallen as of the first week of November. The rate is lower than last year, but the longer-term movement is still towards higher rates.

Effective Interest Rates

The household effective interest rate is an index of interest paid on loans. The index includes both mortgage and consumer debt. It’s also a mix of both discount and posted rates, provided by lenders. It’s not perfect, but it gives us a better idea of where the rate trend is moving. Not just the overnight rate, but the actual interest rate trend of what people are paying on loans.

Borrowing Rates Are Down From Last Year

The effective interest rate is up from last month, but still down from a year ago. The effective interest rate reached 3.70% on November 1, up 0.27% from a month before. This represents a decline of 6.09%, when compared to the same month last year. The effective rate has been moving within a single basis point since August. That is, while lower than last year, they’re struggling to push any lower.

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.

Lower Than Last Year, But Still Trending Higher

The effective interest rate is lower than last year, but the trend is still  towards higher rates. The 6.09% decline in effective rate, is dwarfed by the increases made over the past two years. Last year, rates during the same week were up 14.53% from a year before. The year before that, they increased 14.29% from the year before. Overall, rates are 9.79% higher over the past 5 years. Before 2018, you would have to go back to 2011 to find rates this high.

Canadian Household Borrowing Rate Change

The 12 month percent change for the effective interest rate households paid on November 1st.

Source: Bank of Canada, Better Dwelling.

Borrowing rates are cheap, and have fallen from last year – but they are still higher than they used to be. The trend is still moving towards higher rates, despite a walk lower over the past year. This is a good thing, since higher rates are usually associated with a stronger economy. However, economic headwinds could push these levels lower. That would present a whole other set of challenges though.

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  • LT 8 months ago

    This is good news, despite how the real estate industry will try to spin it. Lower rates are stimulus. If an economy needs stimulus forever, there’s serious problems in its foundation.

  • DB 8 months ago

    I think Canadians are in to deep. Who wants a decade of paying a mortgage and going to work..No other life work work work, pay pay pay. Mortgages are to high to enjoy this. Is it me or have we all been drinking the Cool Aid ?

  • Trevor Stafford 8 months ago

    Rates are coming down in the mid-term. Canada will hold and swim again the global tide for a while, but that has costs of its own.

    We thought we were in the mother of all asset bubbles, but it looks like there’s another on the horizon.

  • straw walker 8 months ago

    When interest rates are this historically low, dropping the rates by 1/4 really is not effective.
    Historical rates are 3 times higher than existing rates.
    The problem is Canadians are addicted to low rates, zero down, zero 1st payment, zero interest rates, and have become over burden with debt..
    This has been to the disadvantage of those folks with money.. Saving accounts are without interest and CASH has NO advantage.
    When will cash become king.. simply when rates return to normal and cash is not competing with easy credit.
    It will happen…and be a big surprise to all these living like kings on credit.

    • Brad 8 months ago

      Anyone with actual money doesn’t have it sitting in a savings account. They’re invested in equities and the last 10 years have been the largest bull market in history. Real estate has only doubled where a basket of tech stocks have 15 times and S&P500 ETF would bet over 4 times. It’s been the greatest time ever for people with actual cash.

  • kitkat 8 months ago

    This report likely ignores the rise in private 1st and 2nd mortgages. Second mortgage rates range from 9.99 to 15.99. There are alot of peaple taking out seconds behind their first mortgage as they don’t qualify with their banks to refinance. The scary thing is the private mortgage sector is largely unregulated. Things are much worse than they actually appear.

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