The Bank of Canada (BoC) has recently reduced its key interest rate by 25 basis points, bringing it down to 4.5%. This is the rate at which banks borrow money from each other. As a result, banks are expected to lower their prime lending rates from 6.95% to 6.7%. This decrease will help reduce Canadians’ borrowing costs.

Penelope Graham, a mortgage expert from Ratehub.ca, explains that most banks will make this change simultaneously. This means that borrowing rates for products tied to the prime rate, like variable mortgages and lines of credit, will also drop. However, TD Bank is a bit different. They have a separate mortgage prime rate, which will likely be 6.85% after the rate cut. To stay competitive, TD Bank might offer larger discounts.

For those with variable-rate mortgages, the lower prime rate means immediate savings. If you have a variable-rate mortgage with adjustable payments, you’ll see a decrease in your monthly payments. For example, if you borrowed $100,000, a 0.25% rate cut could save you around $15 each month. With an average home price of $696,179 in Canada, you could save about $95 per month on a five-year variable-rate mortgage.

If you have a fixed-rate mortgage, your payments will remain constant because you are locked into the same rate for the duration of your loan. Those looking for a new fixed-rate mortgage or preparing to renew may benefit, though indirectly. The bond market has a greater influence on fixed rates than the Bank of Canada’s rate cuts. Since the bond market may have anticipated these cuts, fixed mortgage rates may not fall significantly right away. 

The impact of this rate cut on the housing market might be minimal. Although last month’s cut led to a surge in new property listings, home sales remained slow. Experts like Leah Zlatkin believe that while some buyers are waiting for more rate cuts, home prices might start rising as borrowing costs decrease.

First-time homebuyers might find renewed confidence with these lower rates. As rates decrease gradually, buying a home could become more affordable, and if this trend continues, it could significantly benefit buyers over time. After the previous rate cut, home sales increased, and more properties were listed. This second cut might encourage even more activity in the housing market.

For those with upcoming mortgage renewals, it’s a good idea to start reviewing options now rather than waiting until the last minute. Making extra payments on your mortgage or looking into refinancing options can help manage the impact of higher rates when your renewal comes up.

The next BoC rate announcement is scheduled for September 4, 2024. Instead of trying to predict future changes, it’s better to make mortgage decisions based on your financial situation and goals. Consulting with a mortgage specialist or financial planner can provide guidance tailored to your needs.