Are Canadians really paying lower interest rates?

by Gerv Tacadena12 Nov 2019

While Canadians have paid lower interest rates for borrowing over the past year, a trend analysis shows that rates are still higher than they used to be.

In a think piece in Better Dwelling, market watcher Daniel Wong said that while the effective interest rate has already fallen as of the first week of November, the trend is still towards higher rates.

Also read: Will the downward trend in interest rates benefit the market?

"The 6.09% decline in effective rate is dwarfed by the increases made over the past two years,” he said.

During the same week in 2018, rates were up 14.53% from the year before. In 2016, rates increased by 14.29% from 2015. Overall, this could mean that rates are 9.79% higher over the past five years.

"Before 2018, you would have to go back to 2011 to find rates this high," Wong said.

This means that while borrowing rates are cheaper and have fallen from last year, they are still higher than they used to be.

"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," Wong said.

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