Experts say homeowners with variable mortgage rates will benefit from lower monthly payments after the Bank of Canada's latest cut to its key policy rate.
On Wednesday, the major six banks announced they would decrease their prime rates by a quarter-percentage point, from 5.45 per cent to 5.2 per cent, effective the following day. That came after the Bank of Canada cut its key interest rate target for the sixth consecutive time since June.
The central bank also lowered its rate by a quarter percentage point, bringing it down to three per cent, as it said inflation is sitting around its two per cent target while the economy picks up speed.
Ratehub.ca mortgage expert Penelope Graham said that decision should lead to lower variable mortgage rates across most Canadian lenders.
Calculations conducted by Ratehub indicate that a homeowner who put a 10 per cent down payment on an average priced home in Canada — $676,640 as of December 2024 — would pay around $87 less per month with a five-year variable rate.
Fixed mortgage rates are also set to decrease slightly as bond yields ticked down to the 2.8 per cent range following the central bank's announcement, but Graham said investor concerns over potential inflation will prevent any "dramatic discounts" in the near future.
"Those who currently have a variable mortgage rate will see either their monthly payment lower if they have an adjustable-rate mortgage, or the portion of their payment servicing interest costs decrease, if they’re on a fixed payment schedule," she said in a statement.
Ratehub's calculations show that someone with a variable rate mortgage at 4.45 per cent amortized over 25 years, who pays $3,458 per month, would see that drop to 4.2 per cent and $3,371 in monthly payments. That would mean paying $1,044 less in mortgage payments over a full year.
For every quarter-percentage-point decrease, a homeowner with a variable-rate mortgage can expect to pay approximately $15 less in monthly payments per $100,000 of mortgage, said Victor Tran, a mortgage and real estate specialist at Ratesdotca.
He said the cut comes during a time of economic uncertainty and room for growth in national home sales activity.
"Each successive rate decrease is good news for homeowners and those renewing mortgages," Tran said in a statement.
"While the housing market is showing some signs of life, it’s far from the rush predicted when rates began to decrease. Buyers are currently well-positioned to take the time they need to find the right home and can make offers conditional on financing and inspections."
Since borrowing costs peaked in August 2023, a homeowner who put a 10 per cent down payment on an average priced home with a five-year variable rate would have seen their monthly mortgage payment decrease by $685, according to Ratehub's calculations.
At the peak, the best five-year variable rate was 5.95 per cent. Amortized over 25 years, monthly mortgage costs on a $650,140 home would have totalled $3,842 — a figure that has now fallen to $3,157 with a variable rate of 3.95 per cent.
Phil Soper, president and CEO of Royal LePage, said the Bank of Canada's latest move will further increase borrowing capacity for homebuyers.
"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, the looming promise of hefty tariffs by the United States government is a source of uncertainty for the central bank and consumers alike."
This report by The Canadian Press was first published Jan. 29, 2025.
Sammy Hudes, The Canadian Press
