The Bank of Canada’s latest 0.50% rate cut has lowered the prime rate to 5.95%, creating new opportunities for mortgage seekers. With inflation easing and economic growth still on the horizon, Governor Tiff Macklem’s move aims to keep inflation close to the 2% target.
What This Means for You
Variable-rate mortgage holders: With the prime rate now at 5.95%, the best available variable rates have dipped to around 4.8%. If you’re on a variable-rate mortgage, your payments stay the same, but more of your payment goes towards reducing the principal, helping you build equity faster.
Adjustable-rate mortgage holders: Your payments will decrease along with the prime rate. For every 0.50% cut, you’ll see about $30 in monthly savings for every $100,000 of your mortgage. This makes adjustable-rate mortgages an appealing choice if you’re comfortable with your payments fluctuating, especially in a rate-cutting environment.
Fixed rates: Fixed rates are holding steady, as the market had already anticipated this move from the Bank of Canada. Keep a look out on the bank of Canada bond yields to get a sense of how fixed rates will adjust in the next few days/weeks.
Considering a Mortgage?
If you’re looking for a mortgage and can handle some variability, an adjustable-rate mortgage might be a good fit since your payments will decrease as the prime rate drops. On the other hand, if you prefer the stability of fixed payments, a 3-year fixed-rate mortgage could be the way to go. It locks in your rate, providing peace of mind regardless of future rate changes.
Pro tip: When choosing a fixed-rate mortgage, look for a lender that offers a 6-month early renewal option. That way, your 3-year mortgage is effectively more like a 2.5-year term, giving you some flexibility to renew early if rates look more favorable down the line.
What’s Next?
There’s a possibility we’re not done with rate cuts just yet. Historically, when the Bank introduces a 0.50% cut during a rate-cutting cycle, it’s often followed by another of the same size. With the final rate decision of the year set for December 11th, another reduction could be on the cards. With a projected 1.5% more in rate cuts expected by 2025, you can expect variable rates to dip further down from 4.8% to 3.30%.
Looking Forward
Canada’s economic outlook has some bright spots. The IMF is projecting that Canada will lead G7 growth by 2025, and projects like the Trans Mountain Expansion are giving exports a boost. The economy is expected to pick up, with growth reaching around 2% in 2025 and 2.25% by 2026.
Challenges remain, though, particularly in the job market, where the unemployment rate climbed to 6.5% in September. Business hiring has been slow, especially for young people and newcomers. While interest rate cuts are good news, it might take some time before Canadians see a significant difference in everyday expenses.
For now, the latest rate cut brings some welcome relief. Whether it’s building equity faster with a variable-rate mortgage, saving on monthly payments with an adjustable rate, or locking in stability with a fixed rate, there’s an option to suit your needs. And with the potential for another cut on the horizon, mortgage seekers should stay tuned for what could be another favorable shift in December.
Key Takeaways
- Prime rate is now 5.95% following the latest 0.50% rate cut.
- Best variable mortgage rates are around 4.8%, offering lower costs for borrowers.
- Variable-rate mortgage holders won’t see payment changes but will pay off more principal.
- Adjustable-rate mortgage holders can expect payment decreases, with about $30 saved monthly per $100,000 for every 0.50% drop.
- Fixed-rate mortgage holders wont see any changes on rates.
- For mortgage seekers, consider adjustable-rate mortgages for potential savings or a 3-year fixed rate for stability.
- Look for lenders with longer early renewal options to gain flexibility on fixed-rate mortgages.
As we look ahead, Canada’s economic growth is projected to strengthen, but challenges remain, particularly in the job market. For now, take advantage of lower rates and stay tuned for the Bank of Canada’s next move in December!
