The Latest Rate Cut: What It Means for You
In a move widely anticipated by economists and financial experts alike, the Bank of Canada (BoC) announced a 25-basis point (bps) cut to the overnight rate. This change brings the overnight rate down from 4.50% to 4.25%, with most banks and lenders expected to follow suit, lowering their Prime rates to 6.45%. Notably, TD Bank continues to march to its own beat, keeping its Prime rate slightly higher at 6.60%.
Why the Cut?
The BoC’s decision to reduce rates is influenced by a cocktail of recent economic data:
• Inflation has dropped to 2.5%, signaling that price pressures are easing, but perhaps not quickly enough for the Bank’s comfort.
• Unemployment has ticked up to 6.4%, suggesting a softening labor market.
• GDP Growth in the second quarter showed a healthy increase of 0.5%, but with a rapidly growing population, our per-capita productivity is actually declining. In simpler terms, while the economy is expanding, we’re not getting more productive as individuals.
This mix of data points paints a picture of an economy that’s cooling down—just what the BoC ordered when it began raising rates aggressively last year. Now, it seems the central bank is ready to pivot slightly, with some experts predicting that we could see the overnight rate drop to 3.75% by early 2025, with potentially more cuts to follow.
What Does This Mean for You?
If you have a variable rate mortgage, adjustable rate mortgage, or a Home Equity Line of Credit (HELOC), today’s announcement should bring a little relief to your wallet. As banks lower their Prime rates by 25 bps, you can expect your interest rates to decrease accordingly. The same goes for borrowers with unsecured lines of credit.
For those with fixed-rate mortgages, however, the impact isn’t immediate. Fixed rates are influenced by the bond market, not the BoC’s overnight rate. That said, bond yields have been edging down recently, leading to a gradual reduction in fixed mortgage rates. If your mortgage is closing soon, it’s a good idea to keep an eye on these rates, or better yet, let your mortgage professional do it for you—they’ll ensure you lock in the best rate available at closing.
How Much Will You Save?
Curious about how much this rate cut could save you? Let’s break it down with an example:
• Mortgage principal: $400,000
• Old rate: Prime – 1.00% (previously 5.70%)
• New rate: 5.45%
• Old payment: $2,488/month
• New payment: $2,430/month
In this scenario, your monthly payment would drop by $58. That might not seem like a lot, but over time, those savings can add up—especially if more rate cuts are on the horizon.
Fixed vs. Variable: The Ongoing Debate
The age-old question: should you go with a fixed or variable rate? With the BoC seemingly in a rate-cutting mood, variable rates could offer more savings in the near term. However, fixed rates provide the peace of mind that comes with knowing your payment won’t change, regardless of what happens in the market.
FAQs: Clearing Up the Confusion
• If my mortgage is closing next week, will my rate go down?
• Answer: If you have a variable or adjustable-rate mortgage, yes, you should see a reduction. If your rate is fixed, however, the rate won’t change.
• How much will I save on my existing adjustable rate mortgage?
• Answer: Expect your payments to decrease by about $15 per month for every $100,000 in mortgage principal remaining.
Looking Ahead
The BoC has mapped out its rate announcement schedule for the rest of 2024, with cuts already made in June, July, and now September. The next announcement is slated for October 23rd. Will we see another cut? Only time will tell, but we’ll be keeping a close eye on the economic data and market trends that will influence these decisions.
At, we’re here to help you navigate these changes with confidence. Whether you’re buying a new home, refinancing, or just curious about how these rate cuts impact you, we’ve got the insights and expertise to guide you through it all—while making sure you have a little fun along the way.