Ratehub.ca mortgage expert Penelope Graham said the decision should prompt the prime rate to fall to 5.2 per cent at most Canadian lenders, and lead to lower variable mortgage rates.
Calculations conducted by Ratehub indicate that a homeowner who put a 10 per cent down payment on an average priced home in Canada — $676,640 as of December 2024 — would pay around $87 less per month with a five-year variable rate.
The Bank of Canada cut its key interest rate target by a quarter of a percentage point on Wednesday, bringing it down to three per cent. The cut marked the central bank’s sixth consecutive decrease since June, as it said inflation is sitting around its two per cent target while the economy picks up speed.
Fixed mortgage rates are also set to decrease slightly as bond yields ticked down to the 2.8 per cent range following the central bank’s announcement, however Graham said investor concerns over potential inflation will prevent any “dramatic discounts” in the near future.
“Those who currently have a variable mortgage rate will see either their monthly payment lower if they have an adjustable-rate mortgage, or the portion of their payment servicing interest costs decrease, if they’re on a fixed payment schedule,” she said in a statement.
Ratehub’s calculations show that someone with a variable rate mortgage at 4.45 per cent amortized over 25 years, who pays $3,458 per month, would see that drop to 4.2 per cent and $3,371 in monthly payments. That would mean paying $1,044 less in mortgage payments over a full year.
For every quarter-percentage-point decrease, a homeowner with a variable-rate mortgage can expect to pay approximately $15 less in monthly payments per $100,000 of mortgage, said Victor Tran, a mortgage and real estate specialist at Ratesdotca.
He said the cut comes during a time of economic uncertainty and room for growth in national home sales activity.
“Each successive rate decrease is good news for homeowners and those renewing mortgages,” Tran said in a statement.
“While the housing market is showing some signs of life, it’s far from the rush predicted when rates began to decrease. Buyers are currently well-positioned to take the time they need to find the right home and can make offers conditional on financing and inspections.”
Phil Soper, president and CEO of Royal LePage, said the Bank of Canada’s latest move would further increase borrowing capacity for homebuyers.
“This latest decrease arrives just before the spring housing market when demand typically picks up, which should spur buying and selling activity in the weeks ahead,” he said.
“However, the looming promise of hefty tariffs by the United States government is a source of uncertainty for the central bank and consumers alike.”
This report by The Canadian Press was first published Jan. 29, 2025.
Sammy Hudes, The Canadian Press
Read more: https://www.bnnbloomberg.ca/business/real-estate/2025/01/29/bank-of-canada-cut-will-prompt-lower-variable-mortgage-rate-costs-ratehub/
BoC cuts key interest rate to 3% as tariff threats loom
Canada’s central bank has cut interest rates for a sixth consecutive time as inflation remains around two per cent and the threat of U.S. tariffs looms.
The 25-basis point cut comes as the Bank of Canada forecasts GDP growth will strengthen in 2025 if there is no trade war with the United States.
In his speech to reporters, Bank of Canada Governor Tiff Macklem said while tariffs are top of mind, they were not factors in the rate cut and the monetary policy report (MPR) released today.
“Since scope and duration of a possible trade conflict are impossible to predict, the MPR projection we published today provides a baseline forecast in the absence of tariffs,” said Macklem.
Read More: https://www.bnnbloomberg.ca/business/economics/2025/01/29/boc-cuts-key-rate-by-quarter-point-to-3-as-tariffs-threat-loom/