What you Need to Know About Negative Interest Rates.
It sounds crazy, right? You put money in the bank and instead of earning interest, you have to PAY the bank for keeping your money safe! In essence, that’s what negative interest rates are. If a bank offers -0.5% on deposits, that means your deposit shrinks by 0.5% every year. Of course, the opposite is also true—if your mortgage has a negative interest rate, your bank would pay YOU interest!
Before you get too excited, be aware that this situation hasn’t happened to individual customers – yet. But it’s already happening with European central banks. Over there, some central banks lowered the deposit rates they pay to retail banks to zero and then below. The theory is that making it more expensive for retail banks to hoard cash forces them to start loaning it out at low rates, so consumers and businesses will start spending again. But the risk is that retail banks might store their cash someplace else in order to avoid paying a central bank to keep it for them, or paying mortgage customers monthly interest.
In reality, barring some new economic crisis, the chance of negative interest rates coming to North America is slim. So don’t expect your bank to drop your mortgage rate below zero or start paying you monthly mortgage interest payments anytime soon!
Kupina Mortgage Team – 905.730.4782 – info@kmortgage.ca