Experts analyze the latest round of rate cuts
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Homeowners with variable mortgage rates will see reduced monthly payments following the Bank of Canada’s decision to lower its key interest rate for the sixth consecutive time on Wednesday, according to experts.
The central bank announced a quarter-point reduction, bringing its key interest rate down to 3% from 3.25%. This move comes as inflation stabilizes at around the Bank’s target of 2%, while the Canadian economy shows signs of recovery.
In response to the central bank’s decision, Canada’s six major banks lowered their prime rates by 0.25%, from 5.45% to 5.2%, effective January 30. Penelope Graham, a mortgage expert at Ratehub.ca, told The Canadian Press that homeowners with variable-rate mortgages could expect lower monthly payments, particularly those with adjustable-rate mortgages.
For example, homeowners who purchased an average-priced home in Canada ($676,640 as of December 2024) with a 10% down payment could see a decrease of around $87 per month on a five-year variable mortgage. Additionally, fixed mortgage rates may see slight reductions due to a drop in bond yields to the 2.8% range, though experts caution that concerns over inflation will prevent any significant reductions in the near term.
Victor Tran, mortgage specialist at Ratesdotca, explained that for every quarter-point decrease, homeowners with variable-rate mortgages can expect a reduction of approximately $15 in monthly payments for every $100,000 borrowed. For example, a homeowner with a $650,140 mortgage at 4.45% could see their monthly payments drop from $3,458 to $3,371, a savings of $1,044 annually.
Experts note that the recent rate cut is welcome news for homeowners, particularly those renewing their mortgages or buying a home. Phil Soper, president of Royal LePage, pointed out that the timing of the rate cut could stimulate activity in the upcoming spring housing market.
“This latest decrease arrives just before the spring housing market when demand typically picks up, which should spur buying and selling activity in the weeks ahead,” he said.
However, Soper also warned of economic uncertainties, including potential tariffs from the United States, which could affect both the central bank’s decision-making and consumer confidence.
Since borrowing costs peaked in August 2023, the new rate reductions represent significant savings for homeowners. For example, the monthly mortgage payment on an average-priced home purchased with a five-year variable mortgage has dropped by $685 since the peak.
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