Q: Why are interest rates in focus at the moment?
A: Borrowing rates are garnering a lot of attention right now because there’s much uncertainty about everything from the housing market to what direction the Canadian economy is headed in. Big banks have begun lower mortgage rates again as sales activity has slowed and competition for fewer borrowers has picked up.

Q: How does the Bank of Canada rate affect borrowing rates from the bank?
A: Lenders set their prime rates, or the minimum interest they charge their customers, based off the BoC’s key rate. “The big banks peg their prime rate against that rate, and that prime rate is the best rate a bank will lend their best customers,” says Kelvin Mangaroo of ratesupermarket.ca.

Q: If excessive borrowing is a concern, why doesn’t the BoC raise its rate?
A: With current rates so low, a hike of even a modest amount – say half a percentage point, or 0.5 per cent – would jack mortgage and other loan payments by a significant degree, experts say.

Q: Why are banks cutting their mortgage rates?
A: You may have noticed that the big banks are once again cutting their fixed five-year rates on home loans. Mangaroo says that because their own funding rates have fallen in recent weeks they can afford to pass those lower rates onto Joe Homebuyer. The banks are also fighting with themselves and cut-rate broker lenders over a shrinking pool of borrowers as consumers hit their limit on how much they can borrow, experts say.

Q: Will interest rates rise or fall this year?
A: It’s looking increasingly like interest rates won’t be heading higher anytime soon, according to experts. “From a consumer perspective, it looks like low interest rates are going to be here to stay for the next little while,” Mangaroo said. “We remain comfortable with our forecast for interest rate hikes to be a long way off on the horizon, likely in the second half of 2015,” TD Bank economists said.


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