Stephen Poloz, current Governor of the Bank of Canada, predicts that low interest rates are probably here to stay. These ultra low rates ultimately affect the prices of stocks, bonds, and real estate. Low interest rates mean that it takes much more capital to produce a retirement income for those who use fixed income investments as savings vehicles. Using fixed income products to save for retirement has become risky although the conventional wisdom that these products are “safe” still exists. An economist at TD Bank agreed with Poloz’s statement on the persistence of low interest rates. He said he doesn’t think interest rates will increase until 2019.
The plus side of low interest rates is the economic stimulation that they create. Financing consumer purchases like automobiles and big ticket items are less expensive and the cost of capital for businesses and government is lower. It is also easier for Canadians to qualify for mortgages; however low interest rates have led to price inflation in major urban markets offsetting much of this benefit. In markets less affected by price inflation low interest rates offer an opportunity for first time buyers. Professional advice in the complex mortgage and real estate market is more important than ever as consumers must balance the dynamics of their current and future income with the potential impact of an interest rate increase and the reality of volatile price fluctuations in certain urban markets.
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For more information:
Low Interest Rates May Be Here To Stay, Bank Of Canada Governor Says
Savers must adjust retirement plans amid low interest rates: Poloz
How to invest in the age of permanently low interest rates