5 Tips to Understanding Interest Rate Activity

January 12, 2010 · Print This Article

A few ‘rules of thumb’ to keep in mind when interpreting interest rate activity:

1. As the economy begins to improve, remember: interest rates will go up. Inflation encourages an increase on bond yields which, in turn, produces higher rates.

2. Don’t wait for the Bank of Canada announcement to secure an interest rate; fixed rates will always change before variable rates. Behind the BoC’s public statements, there is a free market for bonds which responds to many factors in addition to government announcements.

3. Ever heard of the Rockets and Feathers principle? It’s a concept that seeks to describe the way gas prices ‘shoot’ up and then slowly ‘float’ down. A principle that can also be applied to interest rates, as they also rise quickly and then take time to come down again.

4. If you have done your research and decided a variable rate is right for you, then stick to a variable rate. I know it sounds easy enough to say now, but then as rates begin to creep upward, your anxiety compels you to lock it in before rates go up any further. Don’t make this common mistake. The only way you will reap the long term benefits of a variable rate is if you stay with the variable rate in the short term. Learn more about the benefits of a variable rate.

5. Things change quickly in this industry, so check back with us often; we promise to give share relevant information and helpful advice to keep you on track with interest rates.