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Canadians Rejoice in RBC’s Mortgage Rate Reduction

RBC Misc 1

Unexpected Surprise by RBC

While most of the economists were confidently predicting a rise in the mortgage interest rates, RBC (Royal Bank of Canada) quietly acted against expectations and reduced its mortgage interest rates by 10 basis points for its 2, 3, 4 and 5 year fixed plans.  The bank made no public announcement and silently reduced the rates without releasing any statement to the press.

 

In the world of finance, 1 basis point equals percentage change in the rate of a financial entity. In terms of interest rates, a reduction of 1 basis point equals a reduction of 0.01 % in the rate and hence, RBC’s current reduction of 10 basis points in its mortgage interest rates would mean that the interest rates would be reduced by 0.1 %, which is a significant reduction if long term payments are considered.

 

RBC, the largest bank in Canada, is believed to have reduced the rates in a bid to attract new mortgage consumers during the spring season of the real estate market when maximum properties are bought and sold and consumers run to banks for home loans. With RBC having chosen the path of mortgage rate reduction in order to lure customers, other banks are also expected to soon follow its suit. Will this result in an exciting loan war among the leading banks? It definitely seems so!

 

Extra Savings for Mortgage Consumers

War or no war, Canadian mortgage consumers have enough reason to make merry. Mortgage rate reduction automatically translates into decreased monthly payments and greater savings for all the mortgage consumers looking to buy homes in near future. This is also great news for those mortgage customers who are going to renew their mortgage in the next 3-4 months. Since most banks allow customers to renew as early as 120 days prior to the renewal date, the consumers can take advantage of the reduced interest rates before they rise up again.

 

So what does current RBC interest rate reduction mean for a consumer in terms of savings? On a 25-year $400,000 mortgage, a reduced rate of 3.69% (from 3.79%) on 5-year fixed term would mean that the customer would be paying approximately $21 less every month. This may seem an insignificant amount if considered monthly. However, over 5 years it means $2000 of savings which is an amount huge enough to fund lots of family dinners or even a splendid vacation. These savings depict an approximate value considering there are no slipped payments or additional costs.

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