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Canadians will make and lose money amid the coronavirus outbreak: expert

Coronavirus: How Canadians will save and lose money
WATCH: Finance expert Preet Banerjee explains how a cut in interest rates due to coronavirus concerns will ultimately impact Canadian families.

The effects of COVID-19 have had a negative impact on daily life, and that includes our finances.

While there is some good news for spenders, Canadian financial expert Preet Banerjee says, it is bad news for others. 

As a result of the outbreak, people are being encouraged to spend more money, as interest rates have dropped, he said. This comes after the Bank of Canada cut half a percentage point from its standard interest rate on March 4 in an effort to shore up the economy.

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READ MORE: Morneau insists economy can handle coronavirus as economist urges fiscal caution

“They’ve taken this measure because they see that economic activity around the world might be depressed, as you have all these measures taken to keep people inside, [which] means they spend less money,” Banerjee told hosts on The Morning Show.

“They want to stimulate the economy just to combat that.”

What does this mean for mortgages?

Whether the lowered interest rates will have an effect on you depends on the type of mortgage you have, Banerjee said.

With a fixed-rate mortgage, he said, the interest rate will not change because it was set for the duration of the term. This means you won’t be paying any more or less.

Financial expert Dwayne Henne on the coronavirus effects on the markets
Financial expert Dwayne Henne on the coronavirus effects on the markets

But if you have a variable-rate mortgage, interest rates may change depending on the type.

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For a traditional variable-rate mortgage, the interest rates change with the market, but the monthly payments stay the same. With an adjustable-rate mortgage, however, the monthly payments can change when the interest rate changes.

Either way, this is a good time to speak with your financial adviser.

What does this mean for homebuyers?

If you are looking to buy a house right now, Banerjee said to be careful that you don’t spend more than you can actually afford.

With the decrease in interest rates, it means that people can borrow more money than they could have a week ago.”

While money may be cheaper to borrow, he said, there is growing concern about a global economic slowdown. This means there is a potential for job loss or cutting back on hours at work.

Banerjee added new homebuyers should be safe and have an emergency fund.

“Make sure that not all of your income is spent towards housing and living your lifestyle,” he said. “Have a bit of a cushion as well.”

READ MORE: 3 tips that could save you thousands on your mortgage, as interest rates rise

For savers, on the other hand, a lower interest rate is bad news because it also means a lower rate of return.

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Bank accounts such as a high-interest savings account have high interest rates for a long time. But whatever interest rate you have, Banerjee said, it may be a bit lower right now amid the novel coronavirus outbreak.

If your savings account, for example, used to pay two per cent a year and you had $1,000 sitting in the account all year, you would earn $20 in interest by the end of the year. If the interest rate goes down to one per cent, you would make $10.

Stock markets plunge on coronavirus fears and oil price wars
Stock markets plunge on coronavirus fears and oil price wars

Gas prices

Another positive side for consumers is cheaper gas prices. Unfortunately, it also means more economic pain for oil-censored regions like Alberta.

As the outbreak continues, demand for oil across the globe has dropped, Allison Mac, a petroleum analyst at GasBuddy, previously told Global News.

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“When you’re seeing a country like China, which is the second in demand for oil, basically locked down, there’s not a lot of gasoline being used in that country,” she said. “And because of that, there’s really no need for the oil.”

Gas prices began to “trickle down” because of the decrease in demand, Mac said.

READ MORE: Coronavirus — How is the COVID-19 outbreak affecting gas prices in Canada?

— With files from Global News’ Hannah Jackson

amanda.pope@globalnews.ca