The Bank of Canada has officially cut its key interest rate by 0.25%, bringing it down to 2.75%, with the prime rate now dropping from 5.2% to 4.95%—but the reason behind it isn’t your typical economic slowdown. Instead, it’s a direct response to a brewing trade war between Canada and the U.S., which is causing uncertainty for businesses, homeowners, and buyers alike.
Let’s break it down and see how this might impact you.
Why Did Rates Drop?
Overnight, the U.S. slapped 25% tariffs on all Canadian steel and aluminum—a huge hit considering those exports brought in nearly $40 billion last year. And this might just be the beginning. More tariffs on industries like automobiles and agriculture could be coming soon, further shaking up the economy.
Bank of Canada Governor Tiff Macklem called it a “new crisis”, warning that while rate cuts can help soften the blow, they can’t completely shield Canada from the effects of a trade war. The uncertainty alone is already making businesses and consumers nervous.
How Does This Affect Homeowners and Buyers?
Here’s the good news: lower rates generally mean lower borrowing costs. If you have a variable-rate mortgage, you might see a drop in your payments soon. And if you’re house-hunting, this could be a great time to lock in a lower rate.
However, there’s another side to the story. The trade war is pushing up the price of goods while also hurting business confidence. That means:
✔ Higher prices on imported goods like appliances, cars, and construction materials.
✔ More cautious lending, as banks assess economic risks.
✔ Job insecurity in industries tied to trade, like manufacturing, oil & gas, and mining.
If you’re thinking about buying a home or refinancing, now’s the time to get ahead of any potential market shifts.
How Does the Rate Cut Affect Different Mortgages?
Since the prime rate is closely tied to the Bank of Canada’s overnight rate, this cut affects different mortgage types in different ways. Here’s a quick breakdown:
| Mortgage Type | Impact of 0.25% Rate Cut |
|---|---|
| Variable-Rate Mortgage | Monthly payments stay the same, but more goes to principal instead of interest. |
| Adjustable-Rate Mortgage | Monthly payments decrease as lenders lower their prime rate. |
| Fixed-Rate Mortgage | No immediate change, but fixed rates may drop in the future if bond yields decline. |
What This Means for You:
- If you have an adjustable-rate mortgage, your payment could decrease slightly.
- If you have a variable-rate mortgage (with fixed payments), more of your payment will go toward paying down the principal faster.
- If you have a fixed-rate mortgage, nothing changes right now, but if rates drop further, it could be a good time to refinance.
What Are the Big Banks Predicting for 2025?
Looking ahead, experts are split on how much further rates could drop:
- Scotiabank expects the Bank of Canada to hold steady at 2.75% through the end of 2025.
- BMO predicts one more 25-bps cut by year-end but warns that if the trade war escalates, the BoC may be forced to slash rates by another full percentage point.
- TD, RBC, and CIBC all anticipate two more quarter-point cuts before the end of 2025, bringing the policy rate down to 2.25%.
This means we could see mortgage rates continue to trend downward, making borrowing more affordable—but the uncertainty around trade policies keeps things unpredictable.
What’s Next?
The situation is still unfolding. More tariffs are expected in April, and the trade battle could continue to push up inflation and increase prices. If the economy slows down further, we could even see more rate cuts down the road.
For now, if you’re a homeowner or buyer, this is a great time to:
✅ Check your mortgage rate—you might be able to lower your payments.
✅ Consider locking in a fixed rate if you’re worried about future rate hikes.
✅ Stay informed—market conditions are shifting fast, and being prepared can save you thousands.
If you’re wondering how these rate changes impact you personally, reach out to us! 6ix Mortgage Group can help you navigate your options and find the best mortgage strategy in today’s changing market.
