Bank of Canada Cuts Rates Again: What It Means For Current & Future Homeowners

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Published: September 4th, 2024 • Last Updated: September 19th, 2024
Author: Ross Taylor on AskRoss.ca

Bank of Canada’s September 2024 Rate Cut Explained: Key Insights for Canadian Homeowners & Investors

The Bank announced another 25 basis point cut to its policy rate this morning, bringing it down to 4.25%. This marks the third rate cut of the year as the central bank continues its efforts to support the economy.

In a nutshell, the BoC is trying to boost our economy by making borrowing cheaper. They’ve made this move in response to slower-than-expected economic growth and job numbers that haven’t met their targets.

By cutting rates, the BoC is essentially putting money on sale, encouraging people and businesses to spend and invest more. This move also helps keep inflation in check, which is one of the BoC’s primary goals.

If you’re looking to borrow money, now might be a good time to take advantage of these lower rates. But as always, make sure to consider your own financial situation before making any big decisions.

For a deeper analysis, read my original article here → Bank of Canada Rate Cut July 2024 Q&A: What It Means for Canadians – Everything You Need to Know.

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What does this rate cut mean for Canadians?

If you have a variable-rate mortgage, your interest rate will decrease, translating to lower monthly payments. For those looking to buy a home, this rate cut could make mortgages slightly more affordable. However, qualifying for a mortgage still remains challenging due to the stress test rate. Let’s get into it.

How does the rate cut affect current variable-rate mortgages?

If you’re currently in a variable-rate mortgage, this rate cut is good news for your monthly cash flow. If you’re shopping for a home or considering a mortgage switch/refinance, keep a close eye on fixed rates as well. They may come down in the near future if the bond market rallies on expectations of slower growth and lower inflation.

If you are interested in learning more about the basics of inflation and the Bank of Canada’s 2% target rate ← read our breakdown here.

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What is the impact on fixed-rate mortgage holders?

For those of you with fixed-rate mortgages, this rate cut will not directly affect you, as your interest rates are locked in for the term of your mortgage. However, fixed mortgage rates are priced on government bond yields, so depending on the reaction in bond yields, we may see fixed mortgage rates adjust.

What are bond yields?

When you buy a government bond, you’re essentially lending money to the government. The bond yield is the return you get on that investment when the bond matures. The 5-year Government of Canada bond yield is a key benchmark that influences 5-year fixed mortgage rates.

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Bank of Canada’s Interest Rate Announcement Dates For The Rest of 2024

The Bank of Canada sets its policy interest rate on eight predetermined dates each year. These announcements are significant for homeowners, investors, and financial markets, as they impact borrowing costs and overall economic conditions.

Click the links below to add to your Google Calendar:

  1. Wednesday, October 23rd, 2024
  2. Wednesday, December 11th, 2024

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What are the potential long-term impacts on the Canadian housing market?

The Bank of Canada’s recent rate cut could have several long-term effects on our housing market, folks:

  • As cap rates compress due to lower interest rates, we may see the value of real estate properties rise.
  • This rate cut might give a slight boost to activity in the near term, followed by a more significant increase in buying activity over the medium term.
  • Lower interest rates can put upward pressure on home values and psychologically fuel buyers, convincing them to enter the market.

However, I must note that the impact on the commercial real estate market has not been overtly tangible following the BoC’s two consecutive cuts.

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How will this rate cut influence prospective homebuyers?

For those of you looking to enter the housing market, the recent rate cuts have slightly improved affordability. While rising competition and prices are a concern, home sales have remained relatively slow so far.

As a mortgage professional, I believe now presents a great opportunity for strategic buyers, especially first-time homebuyers, to enter the market on more favourable terms.

Key points to consider:

  • Lower interest rates can make mortgages slightly more affordable, potentially enabling some of you to enter the market.
  • However, as we saw with the first interest rate cut from the Bank of Canada, it wasn’t enough to help most prospective homebuyers feeling sidelined by high borrowing costs.

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More rate cuts on the horizon? Predictions for the remainder of 2024

Many economists/experts, including myself, believe the Bank of Canada will continue cutting rates in the coming months. If inflation remains under control, this could provide further relief to variable-rate borrowers and stimulate the housing market.

October 2024 Rate Announcement

I predict another 25 basis point cut at the October meeting, lowering the policy rate to 4.00%. This aligns with the consensus among BMO, RBC, Scotiabank, and TD economists, who all forecast a 4.00% policy rate by the end of the year.

December 2024 Rate Announcement

Depending on the incoming economic data, particularly inflation and labour market indicators, I believe there’s a strong possibility of one more 25 basis point cut in December. This would bring the policy rate down to 3.75%, which is in line with the forecasts from BMO, CIBC, and TD.

Looking ahead to 2025

I expect the Bank of Canada to continue easing monetary policy, with the policy rate potentially falling between 2.25% and 3.25% by the end of next year.

However, the pace and magnitude of these cuts will depend on how the economy evolves and whether inflation continues to trend toward the Bank of Canada’s 2% target rate → read more about it here: The Basics of Inflation and the Bank of Canada’s 2% Target Rate.

Sources listed here:

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A word of caution for Canadian homeowners renewing

If you secured your mortgage during the pandemic’s historically low rates, brace yourself for significantly higher payments upon renewal. Even with the recent rate cuts, renewing at today’s rates could mean a substantial increase. According to Equifax, 15-20% of mortgage renewals in 2024 will increase monthly payments by over $300.

Should you refinance your mortgage now?

I’m often asked whether now is a good time to refinance. With the Bank of Canada’s recent rate cuts and the potential for more on the horizon, it’s a question on many homeowners’ minds.

Pros of refinancing now

  • Interest rates are lower now than they were a year ago. If you got your mortgage in the last year, you might be able to secure a lower rate by refinancing.
  • A lower interest rate could mean a lower monthly payment and potentially a shorter payoff term.
  • Refinancing could help you eliminate private mortgage insurance (PMI) if your home equity has increased.
  • You may be able to consolidate high-interest debt by tapping into your home equity through a refinance.

Cons of refinancing now

  • You’ll need to requalify for your mortgage, potentially at a higher interest rate than when you first qualified.
  • Refinancing involves closing costs that can add up to thousands of dollars.
  • Extending your loan term means paying more in total interest over the life of the loan.

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Read our Ask Ross August + September 2024 Newsletter

For most of us, housing represents the largest portion of our monthly expenses, so when those costs start to ease, it’s a win for everyone. In this newsletter, we break down why this cooling trend is important for your budget, what the latest inflation numbers mean for your mortgage, and how you can take advantage of these changes.

Plus, I’m sharing 5 money-saving tips along with a personal update I think you’ll appreciate. Be sure to check out the August/September 2024 edition of the Ask Ross newsletter for all the details. Let’s dive in and see how you can benefit from these shifts.

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Advice from Ross Taylor Mortgages

Ultimately, refinancing makes sense if it will save you money on your monthly mortgage payment and over the long term with a lower interest rate. However, it’s important to carefully consider your specific situation:

  • Check your credit score and history, as this will impact the interest rate you qualify for.
  • Determine how much home equity you have, as this affects your refinancing options.
  • Shop around and compare rates, terms, and conditions from multiple lenders to ensure you’re getting the best deal.
  • Consider your long-term financial goals. Are you looking to lower your monthly payments, pay off your mortgage faster, or consolidate debt?

Whether you’re an existing homeowner or a prospective buyer, it’s crucial to assess your unique situation and goals. Speak with a trusted mortgage professional to explore your options and make informed decisions in this evolving rate environment.

As always, we’re here to help. If you have any questions or want to consult with one of our award-winning mortgage professionals, book your free consultation today.

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