When mortgage rates below 9 per cent were tempting to sign up for
Ongoing decline in lending rates was intended to spur economic activity in the early 1990s
The Bank of Canada's prime lending rate fell below eight per cent and that caught the attention of The National.
"It went down to 7.73 per cent, lower than it's been in more than four years," host Knowlton Nash told viewers watching the program on Nov. 7, 1991, the day the rate drop was announced.
As Nash further explained, that spurred banks and trust companies to trim their own lending rates in return.
But how much of a difference would that make for homeowners?
Substantial savings for some
A lot for some of them, according to reporter Keith Boag, using an example of a $100,000 mortgage with a one-year term, amortized over 25 years.
"Last November, that mortgage had a 13.25 per cent interest rate and a monthly payment of $1,120," said Boag, as an on-screen graphic showed the math involved with the $100,000 example.
"Now, the same mortgage has an 8.75 per cent rate and a monthly payment of $811 — the saving is $309 a month."
(Viewers at home would surely remember the days when Canadian homeowners had paid mortgages priced at twice those rates.)
Trying to decide what to do
And with that change came choices for those shopping for mortgages.
"The question is whether to grab the very low, short-term rates, or lock in at a slightly higher rate for a longer term," said Boag.
Mortgage broker Nelly Van Berlo said it appeared the longer-term choice was the safer bet.
"If it's a first-time home buyer and they're financially just fitting, you don't want to do something that's going to jeopardize them losing that home, keeping the home," she told CBC News.
In those cases, Van Berlo said she typically suggested going with a five-year term on a mortgage.
'Get Canadians spending more freely'
Boag said the rate cut had been made to spur spending at a time when Canadians had been reluctant to do so.
"That's something that hasn't happened so far, even though rates have been falling steadily for more than a year now," said Boag.
"This more dramatic cut in rates is supposed to get Canadians spending more freely, perhaps, it's hoped, in time for the Christmas retail season."
