The prob­lem with the prime lend­ing rate

The Telegram (St. John’s) - - EDITORIAL -

As a fi­nan­cial ad­viser spe­cial­iz­ing in mort­gages, I want to com­ment about the way that the Bank of Canada sets the prime lend­ing rate and its sub­se­quent ef­fect on mort­gage in­ter­est rates.

We can do lit­tle in New­found­land and Labrador to ad­dress the dis­par­ity be­tween our lo­cal econ­omy and the na­tional econ­omy. As a coun­try, we may have ex­pe­ri­enced sig­nif­i­cant job growth and a strong econ­omy. The prob­lem is that this is pri­mar­ily be­ing driven by such prov­inces as On­tario and Bri­tish Columbia. How­ever, two prov­inces does not a coun­try make.

In New­found­land and Labrador, and sim­i­larly in Al­berta, our economies have been badly hit by the huge drop in the price of oil and its sub­se­quent ef­fect on jobs in both prov­inces. As a re­sult, many work­ers have re­turned home, have to live on min­i­mum wages or no wages at all, and many have been forced into bank­ruptcy.

Now to the main point of this let­ter. When the Bank of Canada sets the prime in­ter­est rate, there is no ad­vance no­tice. They would have made the de­ci­sion ahead of the an­nounce­ment, but they don’t tell any­body. So, the rate in­creases as soon as the an­nounce­ment is made and in­stantly the banks re­act and up goes the vari­able mort­gage in­ter­est rate. We, as con­sumers, are hung out to dry! If we lock in our mort­gage rate be­fore the an­nounce­ment and the rate doesn’t rise, we are stuck with the in­creased pay­ments. Con­versely, if we don’t lock in and the rates do in­crease, then again we get hit with the in­creased pay­ments. This is to­tally one-sided, un­fair to home­own­ers and clearly pro­tects the in­ter­est of the banks, and not con­sumers.

Why can’t the sys­tem be changed to give us 30 days to make up our minds, af­ter the rate an­nounce­ment is made?

Bank prof­its have in­creased about ten­fold — yes 1,000 per cent in the last 10 years, give or take. Where is the jus­tice?

Dave Rud­of­sky St. John’s

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