There are two different types of interest rates: the Prime interest rate and fixed rates (or long-term rates). The Prime interest rate, which the Bank of Canada (BoC) controls, is what gives us our variable interest rate. The focus of the BoC is on stimulating the economy and keeping the inflation rate low. The best way to stimulate the economy is to get people to spend money, thus, the low interest rate. Now that the economy is nearing full recovery, inflation can become an issue, so to keep it in check the BoC will start to raise the prime interest rate. This is the rate the banks pay to borrow money.
Fixed rates, on the other hand, are based on the bond markets and although what the BoC does with the prime rate has an impact on the fixed rates, the two act independently of each other. The Bond market, like all markets fluctuate daily.
So the challenge for homeowners is to look at the rates in rational manner and not overreact to the headlines. Is the best advice to lock in t…
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