The Bank of Canada lowered interest rates to half a percent earlier last week. The drop has had negative impacts on the value of the dollar, according to financial experts; however, the drop should help give a boost to the economy. This interest rate drop is the second in the last six months (a drop of .25 percentage points occurred in January of this year.) ‘’

This reduction in lending rates is expected to help Canadians who are trying to pay off debt, including mortgages. These reduced rates may also affect the housing market, as buyers are likely to be more interested in purchasing a home while they can take advantage of the lower rates.

According to an article in the Global News, the rate drop “directly influences private lending interest rates.” Rates that fall under this category include variable rate mortgages and lines of credit through the bank. Borrowing rates were already very low before the cut.

Prior to the rate cut, the BMO Chief Economist, Doug Porter, told reporters that this reduction could cause even more upswing for the housing market. Home sales in two of Canada’s largest cities were extremely high already this summer. Porter says that with or without this cut, home sales across the country could reach a record high this year.

With the housing market on a hot streak, with no signs of slowing down, real estate agents can take advantage of these near-record low borrowing rates to encourage potential buyers to take the plunge.

 

Agents can help potential buyers recognize the benefits of purchasing a home with lower interest rates by:

Emphasizing lower monthly payments: Lower interest rates generally mean lower monthly payments. This may also be an opportunity to show buyers they may be able to afford more house than they originally thought.

Emphasize lower overall cost: Lower interest rates mean that potential buyers will save money on the total cost of their loan. The lower interest rates may also allow a potential buyer to choose a shorter-term loan (for example a 15-year instead of 30-year) with reasonable monthly payments.

Reinforcing the importance of a down payment:  Canadian residents can maximize the lower interest rate advantages by adding a down payment to the table. This will help lower their monthly payment and the amount of loan they have to take out, increasing their savings over the course of their loan.

 

Consider the downside: One potential drawback for the lower interest rates is the marketability of homes in the future. When interest rates increase home prices tend to drop. People, who buy a home now, could potentially have concerns about selling their home in the future, due to a lower housing market. To help diffuse this potential side effect, families should consider living in the home, they purchase for at least 4 to 5 years after the initial purchase.