Want to know if the latest rate cut will affect your mortgage investment? Do MICs consider rate cuts when allowing investors to invest in the mortgage pool? If yes, the answer is that rising or falling interest rates can affect both your mortgage portfolio and investment.
Rising interest rates indicate that you will earn more money in your savings account or on the GIC you recently acquired. However, it is possible that your mortgage rate may rise, your auto loan will become more expensive, and your stock portfolio will decline.
How do interest rates work?
The interest rate is the amount a borrower pays a lender to borrow money. In terms of mortgage investment, it refers to the amount a mortgage borrower pays to a mortgage investor for money borrowed.
It operates similarly with an interest-bearing investment. When you purchase a guaranteed investment certificate (GIC), you are giving the financial institution your investment capital at an annual interest rate. A mortgage borrower is asked to pay you the interest on their debt.
How are interest rates determined?
The Bank of Canada sets policy rates primarily depending on economic conditions and inflation levels. The current policy rate after the latest rate cut is 3.75% benchmark rate. The policy rate or overnight rate is the interest rate that Canadian banks use to borrow from one another.
Whenever the Bank of Canada introduces an overnight rate change, no matter it’s a cut or a hike, other lending institutions, such as lending institutions, mortgage investment corporations, and GICs also need to follow the trend. When all these institutions amends the rate change, it impacts how Canadian consumers and businesses spend or borrow money, the demand for goods and services, and even the mortgage pool they invest in.
Impact Of Interest Rate Rise & Fall On MICs
When it comes to the reason behind the continuously falling and rising interest rate, the rate of inflation is one of the most important factors that contribute to this fluctuation.
In terms of mortgage investment portfolio, the interest rate changes are likely to influence the risks and returns on your investment. Before you plan to invest a significant amount of money in a mortgage pool, make sure you understand how it decides on returns and dividends, thereby meeting your expectations in the terms of wealth generation and profit earned.
If you are looking for a reliable mortgage investment corporation in British Columbia to invest your dollars in a mortgage pool, Versa Platinum is your first choice. We are a trusted MIC in Abbotsford, assisting eligible investors in making a successful mortgage investment and earn potentially high returns on the money invested.
For more details on how and whether the latest rate cut would impact your mortgage investment, feel free to talk to our investment advisors at Versa Platinum.
