You may wonder why interest rates are so low comparing to other countries and who can benefit from this fact. Find out more about interest rates!

Why are interest rates so low?

  • Low population growth: A high population growth results in more people entering the economy each year which inevitably means more people that request loans and go into debt. Canada’s population growth has hovered steadily around 1% for the last two decades.
  • Relatively high borrower to saver ratio: Rising interest rates are driven strongly by demand for them. In developing economies, there tends to be much more borrowing going on than saving as people try to get a foothold in life. In developed countries, like Canada, people simply aren’t that desperate. Let’s also not forget that it’s technically savers that finance borrowers. Having a more balanced borrower to saver ratio therefore leads to lower interest rates.
  • Current policy: Governor of the Bank of Canada Stephen Poloz and his peers have been actively trying to keep interest low. Measures that they see as making sure only the most qualified lenders give out loans and give Canadian households some breathing room financially.

Why would rising interest rates be a big concern?

One of the chief reasons for concern is the effect it would have on potential borrowers who already have to meet strict requirements to get a loan in the first place. When you are assessed for a loan in Canada, you are benchmarked for risk against an interest rate that is 2% higher than the actual interest rate on your loan or mortgage.

That means borrowers need to prove themselves according to a 5% interest rate if they get a loan with an average interest rate of around 3%. If interest rates were ever to rise to the 5% mark, this means borrowers would be assessed according to a steep 7% interest rate.

This would be bad news for most new citizens hopeful for a new loan or who want to refinance. Mix it with a housing-bubble of immense proportions and many would simply be unable to afford a home.

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Featured Rates

FIXED

LenderRateTerm
Mortgage Lendwise RateLendwise

2.39%

5-Year
Mortgage First National Bank RateFirst National Financial

2.69%

4-Year
Mortgage RMG RateRMG Mortgages

2.64%

3-Year
Mortgage Street Capital RateStreet Capital Bank

1.99%

2-Year
Mortgage TD Bank RateTD Bank

2.69%

1-Year

VARIABLE

TermRate
5-Year Variable

2.85%

3-Year Variable

3.10%

OTHER

TypeRate
Line of CreditStarting at

3.00%

Equity LoansStarting at

5.99%

Private MortgagesStarting at

5.99%

Reasons the interest rate looks safe (for now)

Recent history and current policy

It seems that the authorities at the moment feel safe and justified in their policies of keeping the interest rates low, even as Canada has been struggling with sluggish economic growth for a few years now. This year has seen the first interest hike in seven years (from 0.5%-0.75%). That alone should tell you a lot.

Poloz has also recently expressed his view that Canada has emerged from this slump and their failure to hike up interest again recently as some expected, signal that they are likely to continue the trend.

Book and Magnifier

Unlikely shift in demographics

We mentioned before that some of the factors that drive Canada’s low interest rates are slow population growth and a good borrower to saver ratio. This is unlikely to change based on current and past data. Also, Canada is not as affected by the recent uptick in immigration as many other developed countries further reigning in any drastic change.

Little to no inflation

Inflation drives interest rates up. It’s as simple as that. This is not only a phenomenon in Canada at the moment but a global trend as a result of globalization that means there is always a steady supply of workers, competition from huge businesses such as Amazon that keeps prices from rising, and the replacement of workers by technology as well as the lowering cost of manufacturing.

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My wife and I recently purchased our first place, so we started to look for a mortgage broker. Neither of us really knew what we were doing, so it was important to us that we could find someone who could guide us through the whole process. After some searching we finally stumbled upon the guys at certified mortgage broker We worked with leon and his team, got a great rate and they took their time to explain and guide us through the whole process. Great rates and great service. Would absolutely recommend.
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06:16 26 Feb 18
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Deane Laflamme
Deane Laflamme
04:40 27 Feb 18
My wife and I recently purchased our first place, so we started to look for a mortgage broker. Neither of us really knew what we were doing, so it was important to us that we could find someone who could guide us through the whole process. After some searching we finally stumbled upon the guys at certified mortgage broker We worked with leon and his team, got a great rate and they took their time to explain and guide us through the whole process. Great rates and great service. Would absolutely recommend.
Stephnie Boyles
Stephnie Boyles
13:59 15 Nov 17
Got tired of sow service and mediocre rates from my bank, so I started looking for a mortgage broker. Had some family friends recommended Leon and his team, so decided to check them out. Was very impressed with Leon, he guided me through step by step, recommended a mortgage and I ended up switching to him. My rate is better and he always answers call and emails right away.
Billye Peralta
Billye Peralta
13:38 19 Nov 17
Was looking for a new mortgage broker, my old one moved so had to find someone else to work with. Didn't really know how to go about it so just started googling. After some searching and talking, decided to go with the guys at certified mortgage broker. No one could match their rates, plus their customer service is honestly some of the best i’ve seen.
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02:25 16 Nov 17
We worked with Leon and he provided a thorough and a professional process in re-financing our mortgage. Communication was consistent, he was easy to reach and documents were processed quickly. Most importantly, we got a great rate that has us savings hundreds of dollars per month on our home. These guys really know what they're doing.
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00:12 18 Jul 17
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