On June 5, 2024, the Bank of Canada made a pivotal decision to cut its key interest rate by 25 basis points, bringing it down from 5.00% to 4.75%.
A 0.25% rate decrease doesn’t seem to be much on its own – for every $500,000 mortgage, your mortgage payment is approximately $70 lower. A small change like this is not enough to turn the tide of the housing market, however, it’s a much welcomed start of (hopefully) a series of rate cuts in the coming months.
What Do Economists Say?
Although the Bank of Canada remains cautious about future rate cuts, many economists anticipate a total reduction of 0.75% this year, bringing the overnight rate closer to 4.00%. This reduction could have a significant impact on the housing market by:
- Increasing borrowers’ purchasing power by 10% or more, depending on the rate or term of their mortgage.
- Stimulating more home buying activity.
- Potentially leading to a more active housing market.
The results? A more dynamic and accessible housing market for all.
The rate cut affects existing, new, and renewal mortgage holders differently. Let’s break it down:
For Upcoming Mortgage Renewals
This group will benefit the most from the rate cut.
If you were in a lower mortgage rate you got from 3 to 4 years ago and now you are anxious about an upcoming renewal this year, the news of rate cut is a saving grace for you. It will mean a much smaller rate shock when you get your renewal offer.
Lenders are lowering their rates to compete for renewal clients. It’s a great time to let an experienced mortgage broker shop the best deal for you.
For Variable Rate Mortgage Holders
If your variable rate mortgage is a fixed payment product, your monthly payment will not change. However, your interest will be lowered by 25bps immediately, and more of your monthly interest will go to principal of the mortgage rather than interest. Your monthly payment will reset at renewal which will bring down your cash flow as well.
** If your variable rate mortgage is a floating payment product, you will likely see your monthly payment reduce, i.e. better cash flow, starting the next payment cycle. **
For Fixed Rate Mortgage Holders
If you are in a fixed rate mortgage, this will not have any impact to your mortgage until you reach your time of maturity. However, the positive side effect of a rate reduction is that your home value will gradually increase – your home will likely be worth more in the near future.
If you were looking to refinance your mortgage, you will potentially have more home equity available for refinancing in 6 to 12 months.
For Home Buyers
Given the tight supply-demand condition in the Canadian housing market and a high ownership rate (70% of Canadians are homeowners), housing prices are forecasted to rise continuously in the next 5 to 10 years.
Given the June rate cut and another potential rate cut in July, it is expected to bring increased home buying activity.
An economist at a Toronto housing conference noted, “a lot of the home buyers searching for homes in this fall market will wish they had bought in the spring.”
Reminder, it’s important to know how much you are able to qualify for before you start your search. Use our Mortgage Pre-Approval Checklist to guide you.
Lowest Rates Now
Here are our lowest rates now (subject to qualification):
- Lowest 6 months fixed mortgage rates for Insured Mortgage (home purchase, < 20% down payment, 680+ credit, and $1,000,000 purchase price): 4.34%
- Lowest 5 year fixed mortgage rates for Insured Mortgage: 4.59%
- Lowest conventional 3 year mortgage rates (20% down payment): 5.29%
- Lowest Alternative Lender / B Lender Mortgage Rates 3 year rates: 5.95% / 6.24%
In Conclusion:
With the latest rate cut lowering it from 5.00% to 4.75%, it’s ‘small’ yet a significant change which could mean big savings for mortgage holders and a boost in purchasing power for home buyers.
Whether you’re renewing, holding a variable or fixed rate mortgage, or planning to buy, this is crucial information you can’t afford to miss.
Discover how this rate cut affects you and what to expect in the coming months. Stay informed and make the most of these changes! Book a Call with an Effortless Mortgage Advisor today.
