Interest Rates- A.C.T.02024.01.24

The Accredited Canadian's Toolkit

Today’s headline news in my feed was that the bank of Canada has decided to leave the overnight rate at 5%. There’s speculation that the overnight rates will drop in the spring or summer. What does this mean for you as a business owner or investor? The availability of credit pumps up asset prices. If the cost of servicing debt is very low, there is more willingness to pay more for the fixed amount of goods and services in an economy. If the cost of goods and services increases, this is inflation. The central bank can set the overnight interest rate in an attempt to influence the cost of credit and thus the prevalence of inflation. What do interest rates do in my industry of rental real estate? Higher Interest rates makes it more difficult for people to qualify to purchase a house, this keeps people renting for longer and increases the Tenant pool. Where I have property, it is difficult and expensive to build new property so a larger tenant pool increases the market rent,. Lower interest rates allows for increases of real estate prices values. The interest rate is more of a neutral factor. Overnight interest rates affects Short-term debt servicing like credit card debt and variable rate mortgages. Most of my mortgage debt is in fixed rate mortgages which are priced based on the Canada mortgage bond of various maturities, so changes to the overnight rate does not affect my business much. The overnight rate is a neutral factor.