The Bank of Canada’s .25% cut to its overnight rate on Wednesday should have holders of variable-rate mortgages smiling the next time they make their monthly mortgage payments.
“Wednesday’s rate cut offers some comfort to variable mortgage borrowers, who will now see either their monthly payments, or the portion that services interest, immediately decrease,” says Penelope Graham of Ratehub.ca, adding the bank made the right move in taking its rate to 2.75%.
“Ongoing tariff threats and economic uncertainty all but guaranteed the quarter-point cut; the central bank must do what it can to pad against an incoming economic downturn.”
“The need for stimulus is already here; even as the full tariff implementation is still pending, the uncertainty is already being felt by markets, paralyzing small businesses and investment.
The bank’s Governing Council said ‘continuously changing’ tariff threats restrain consumer activity and on-target inflation warranted the decrease.”
Graham offers an example of potential savings for variable rate holders.
“A homeowner who put a 10% downpayment on a $499,967 home with a five-year variable rate of 4.2% amortized over 25 years, with a total mortgage amount of $463,919 has a monthly mortgage payment of $2,491,” she says.
“With the 25-basis point rate decrease, their variable mortgage rate will decrease to 3.95% and their monthly payment will decrease to $2,428, meaning the homeowner will pay $63 less per month, or $756 less a year on their mortgage payments.”
Holders of fixed rate mortgages are also seeing some relief.
“Fixed mortgage rates have already decreased in recent weeks, following a plunge in bond yields on March 3; the five-year government bond yield fell to 2.5%, a low not seen since April 2022, as investors reacted to the official implementation of tariffs. Lenders may decrease rates further as bond markets continue to react to the ongoing tariff scenario,” says Graham.
Expectations of a heated spring housing market have cooled.
“Tariff uncertainty has thrown cold water on what otherwise would have been a robust early spring market; home buyers are hesitant to buy properties as a potential recession looms, while sellers pile inventory onto an already saturated market,” says Graham.
“This week’s rate cut will sweeten affordability slightly and may incentivize would-be buyers to come off the sidelines, but it’s more likely that a chill will remain on the housing market until tariff fears dissipate for good.”
There’s a flip side to the rate cut for some investors.
“Rate cuts are great news for borrowers, but not so great for passive investors and savers,” says Graham. “With the 25-basis point interest rate cut, savings and investing products, which are based on lenders’ prime rates, will see their rate of return drop at a faster pace.”
“Products such as GICs, which offer a guaranteed return over a set period of time, can provide Canadians with some peace of mind, if they’re concerned about how potential tariffs will impact their investments.”
The next three Bank of Canada rate announcements are April 16 (two weeks after the next round of US tariffs on Canada), June 4 and July 30, with the majority of economists at Canada’s big six banks predicting cuts on at least two of those dates.