Great news for millions of Canadians: There’s a small measure of relief in terms of housing costs happening right now.
On Wednesday, July 24th, 2024 the Bank of Canada lowered its overnight lending rate by 25 basis points to 4.5%. And, there’s more hope on the horizon, with suggestions that the mortgage rates in Canada may move even lower, boosting the economy.
This adjustment comes as a response to the strenuous economic conditions many Canadians are feeling. It has potentially positive implications for borrowers, homeowners, and first-time homebuyers.
Let’s unpack what the Bank of Canada interest rate cut means and how it can affect you. This blog will take you through how this decrease might affect variable-rate borrowers and fixed-rate borrowers, and what it means for the housing market as a whole.
Impact on variable-rate borrowers vs. fixed-rate borrowers.
The lending rate lowering will be a welcome relief to those with variable rate borrowings, says Shawn Miskiman, Manager of Wholesale Deposits and Treasury Administration with Vancity. Variable rate mortgages and credit lines, for example, will become a little less expensive.
It doesn’t matter what kind of structure your mortgage has, either. The lowering of rates is good news for all variable-rate borrowers. If your mortgage payments automatically adjust with interest rates, you can expect your regular payments to decrease. If your mortgage payments remain constant regardless of interest rate changes, more of your payment will go towards the principal. This means you could pay off your mortgage faster compared to when mortgage rates in Canada are higher.
But Miskiman says the effect is expected to be muted for members with fixed-rate borrowings, such as fixed-rate mortgages or personal loans. This is because the Bank of Canada interest rate cut “was widely expected by the market, and fixed-rate mortgage pricing had largely incorporated it, with mortgage rates dropping in the previous weeks.”
Essentially, when your mortgage rate was decided, this long-anticipated rate drop was factored in. But, Miskiman says it’s still good news for fixed-rate borrowers. While effects may be muted right now, it can be a positive indication of what the future looks like if your mortgage is coming up for renewal.
If inflation continues to move lower, as the Bank of Canada suggests, Miskiman says we can likely expect even more interest rate cuts. “This could feed through to the fixed-rate mortgage pricing in the weeks to come as more economic data are released.”
If inflation continues to move lower, as the Bank of Canada suggests, Miskiman says we can likely expect even more interest rate cuts. “This could feed through to the fixed-rate mortgage pricing in the weeks to come as more economic data are released.”
What does this all mean for you? The long and short of it is when the Bank of Canada’s interest rate lowers, Canadians save money on borrowing.
Housing market considerations.
As many of us know firsthand, the Canadian housing market can be a challenging landscape, especially for first-time homebuyers. While a 0.25% rate cut is a step in the right direction, it’s unlikely to dramatically change the market dynamics.
Miskiman says the 0.25% rate drop is unlikely to have a major effect on the Canadian housing market. “With home prices and mortgage rates still elevated and demand for housing increasing as the population has surged, home affordability continues to be a major challenge.”
However, there is a silver lining. Vancity offers competitive rates on CMHC-insured mortgages and an excellent rate on the First Home Savings Account (FHSA), designed to help new buyers save more efficiently. These tools can provide the much-needed support to navigate an unfriendly housing market.
How Vancity can support you.
At Vancity, we are committed to helping our members achieve their financial goals. With the latest rate cut, there are several ways we want to support you:
- Personalized mortgage advice: Our mortgage specialists are ready to provide tailored advice, helping you understand how the rate cut impacts your specific situation.
- Best-in-Market rates: We offer competitive mortgage rates in Canada and savings accounts designed to make homeownership more attainable.
- Educational resources: From our comprehensive guides to our informative blog posts, we provide the resources you need to make informed financial decisions.
By choosing Vancity, you’re not just getting personalized service; you’re joining a community that prioritizes your financial well-being. Since 1946, we’ve been a trusted financial force for change, advocating for our members and getting resourceful with solutions, like when we put together a little something we call the Mixer Mortgage.
We offer resources and support every step of the way to ensure your first home-buying experience is as smooth and successful as possible.
Speak to a mortgage specialist for help with your goals.
Navigating the financial landscape can be complex, especially when you throw shifting interest rates into the mix.
At Vancity, we’re here to support you every step of the way. Contact one of our mortgage specialists today to get personalized advice and support tailored to your needs and goals. Let’s work together to make your dream of homeownership a reality. Vancity has your back.