Oil Price & Mortgage Interest Rates

This is an easy way to see the relationship between oil prices and mortgage interest rates.

Mark Herman, Top Calgary Alberta mortgage broker.

The path between the price of oil and the cost of your mortgage may seem long and winding and hard to follow, but it does exist.

Oil is a major component of Canada’s economy. Energy accounts for about 25% of Canadian exports and oil is a significant part of that. Oil is now selling for about half what it was just a few months ago.

Lower oil prices mean less royalty money for governments. Low oil also means the main driver of employment in Canada – the Alberta oil patch – is likely to slow as well as energy firms cut back operations. Employment is one of the key indicators the Bank of Canada watches when determining interest rate policy.

Falling oil prices are likely to have an, overall, negative effect on Canada?s economy, exerting downward pressure on the Bank of Canada rate, and therefore variable mortgage rates. The impact on GDP and employment will likely hold down government bond yields and, in turn, fixed mortgage costs.