In case you missed it, earlier today the Bank of Canada made headlines by cutting its key interest rate by 0.50%, lowering it to 3.75%. This significant adjustment follows a series of smaller cuts and comes in response to slower-than-expected GDP growth and weak inflation reports. While the rate remains somewhat restrictive, the expectation is that this move will stimulate economic growth and alleviate inflation concerns.
What’s Next for Interest Rates?
The Bank of Canada predicts that the policy rate could fall to as low as 2.50% by next spring, with the possibility of another cut in December if current economic trends persist. This opens up discussions about the potential impact on the housing market. Lower interest rates are historically associated with increased demand for housing, and this time could be no different. However, challenges such as zoning restrictions and labor shortages may continue to limit new construction.
How Does This Affect Variable Rate Mortgage Holders?
For homeowners with variable rate mortgages, today’s cut brings tangible savings. Here’s a quick breakdown:
- For every $100,000 borrowed, you’ll save about $28 per month.
- If you have a $400,000 mortgage, that’s roughly $112 in monthly savings.
When combined with the previous three reductions, your savings could total $72 a month, or about $288 for a $400,000 mortgage.
Important Note for Mortgage Holders:
- Adjustable Rate Mortgage (ARM Variable): Your payments should automatically adjust in the next lender cycle. If you don’t see a change, reach out to your lender (or us!) to confirm.
- Traditional Variable Interest Rate Mortgage (VIRM Variable): If you’re with one of the major banks, you may need to contact your lender to make adjustments to your payment.
- Fixed Mortgage: If you’re on a fixed rate, you won’t see any changes.
Opportunities for Buyers
This recent news could rejuvenate the housing market, attracting both buyers and sellers back into the fold. If you’re considering a home purchase, now is the time to revisit your numbers and budget. Increased demand may lead to rising home prices, so being prepared to act quickly and wisely is essential.
Looking Ahead
Mark your calendars! The next Bank of Canada announcement is scheduled for December 11th, and we could see an additional rate cut of 25 to 50 basis points.
If you have any questions or would like to discuss how these changes impact your specific situation, don’t hesitate to reach out. We’re here to help you navigate this evolving market!
Written by:
Trevor Bumstead
Mortgage Broker
Dominion Lending Centres TLC Mortgage Group