On June 5, 2024, the Bank of Canada made a big decision to lower its key interest rate by 25 basis points. This change brought the rate down from 5.00% to 4.75%. While a 0.25% decrease may not sound like a lot, it means that if you have a mortgage of $500,000, your payment will be about $70 lower each month. This small change could help kickstart a series of further rate cuts in the months ahead.
What Do Experts Think?
Many experts believe that the Bank of Canada may lower rates by a total of 0.75% this year, bringing the overnight rate closer to 4.00%. Here’s what this could mean for the housing market:
- More Buying Power: Borrowers could see their purchasing power increase by 10% or more.
- More Home Buying: We might see more people buying homes.
- A Better Housing Market: This could lead to a more active housing market for everyone.
How the Rate Cut Affects You
Upcoming Mortgage Renewals
People renewing their mortgages will benefit the most from this rate cut. If you have a lower mortgage rate from 3 to 4 years ago and are worried about renewing this year, this news is good for you. It means you won’t feel such a big shock when you get your renewal offer. Lenders are lowering their rates to attract renewal clients, so now is a great time to let an experienced mortgage broker find the best deal for you.
Variable Rate Mortgage Holders
If you have a variable rate mortgage with a fixed payment, your monthly payment won’t change right away. But your interest will go down by 25 basis points, which means more of your payment will go toward paying off the principal of the mortgage instead of interest. Your payment will reset at renewal, which could also help your cash flow.
If your variable rate mortgage is a floating payment product, you might see your monthly payment decrease, giving you better cash flow starting with the next payment cycle.
Fixed Rate Mortgage Holders
If you have a fixed rate mortgage, this change won’t affect your mortgage until your term is up. However, a positive side effect of the rate reduction is that your home value will likely increase over time. If you want to refinance your mortgage later, you might find you have more home equity available in 6 to 12 months.
Home Buyers
In Canada, the supply and demand for homes is tight, and 70% of Canadians own their homes. Housing prices are expected to keep rising over the next 5 to 10 years. With the June rate cut and another possible cut in July, we can expect more home buying activity. An expert at a housing conference in Toronto noted, “many home buyers looking for homes this fall will wish they had bought in the spring.”
Current Mortgage Rates
Here are the lowest mortgage rates available now (subject to qualification):
- Lowest 6-Month Fixed Mortgage Rates for Insured Mortgage (home purchase, less than 20% down payment, 680+ credit score, 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%
Conclusion
The recent interest rate cut from 5.00% to 4.75% may seem small, but it could lead to big savings for mortgage holders and a boost in purchasing power for home buyers. Whether you are renewing your mortgage, have a variable or fixed rate mortgage, or are thinking about buying a home, this is important information that can help you make smart decisions.