Bank of Canada cuts rate by 0.50% again

They just announced a 2nd straight 0.50% rate cut making it five cuts in a row! The first-three cuts were by 0.25% each. Their benchmark interest rate now sits at 3.25%.

This is great news for buyers and mortgage brokers have already been seeing a big uptick in pre-approvals and accepted offers as many had anticipated this.

We have now seen a 1.75% drop in the benchmark rate since June - that totals to about $100/mo for every $100,000 borrowed. This 5th straight decrease comes after 6 consecutive stays in rate announcements since July 2023. From March 2022 to the last increase in July 2023, policy rates had risen by 4.75% in total.

Here are some things you need to know:

1. This is another big relief for those who currently have variable rate mortgages. The announcement directly impacts variable rates and lines of credit – they will go down by 0.50%.
 
2. Fixed rates will NOT go down by 0.50% today based on this announcement.
 
3. Fixed rates are based on bond yields - Forecasts for future interest rate cuts are priced into the bond market, that helps set the rates for fixed mortgages. Given that today's news was expected, bond yields have not moved much this morning, however have been declining over the past 2 weeks after a brief spike. If bond yields drop further and remain lower, then we may see fixed rates come down more in the coming weeks - they don't move often.

4. In their words today, "With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range. Governing Council has reduced the policy rate substantially since June. Going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time. Our decisions will be guided by incoming information and our assessment of the implications for the inflation outlook. "

5. While many clients have gone with a 3-year fixed rate this year, the variable rate conversation has been happening a lot more and will likely see more clients opt for it.
 
6. Fixed rates are still lower than variable rates but not by much after today’s drop - the gap is shrinking.
 
7. Not all lenders will auto-decrease the payment. The Big 6 banks ( and some credit unions ) aside from Scotia all have a set payment variable - they will not auto-decrease. The payment will remain the same, but more of it will go to principal and less to interest. On exception, a client could talk to their lender to see if they will allow a payment adjustment.

8. Lenders will shortly make announcements to their updated prime rates. Payment changes ( for lenders that are adjustable ) usually happen within the next couple scheduled payments.
 
9. The next rate announcement will be on January 29th followed by March 12th. There will be a total of eight Bank of Canada announcements in 2025. 
 
You can read the full Bank of Canada release here.