For the first time since the early days of the COVID-19 pandemic, the Bank of Canada (BoC) announced on June 5 a reduction in its overnight interest rate from 5% to 4.75%. What does this mean for homebuyers and homeowners?
While the 0.25% cut won't drastically change things immediately, it's seen as the start of a trend toward lower rates, which will reduce mortgage costs over time.
The BoC's rate influences the interest rates that banks charge for mortgages and loans. This means that people with variable rate mortgages may soon see lower payments as their rates adjust downward.
The impact on your variable rate mortgage depends on its structure:
- If your payments change with your lender’s prime rate, they may decrease automatically.
- Otherwise, a lower rate means more of your payment goes towards the principal, helping you pay off your mortgage faster.
For those with fixed-rate mortgages, this cut might offer some relief but won't resolve all affordability issues. If you took out a mortgage in 2022 or earlier, you likely had a much lower rate. Therefore, renewing your mortgage now means facing significantly higher rates.
With this rate cut, all eyes are on the BoC's next announcement on July 24.
Posted by Geordie Morison on
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