We are pleased to inform you that today, the Bank of Canada reduced its target for the overnight rate by 25 basis points, bringing it down to 4.75%. This is the first interest rate cut since the tightening cycle began in March 2022.
A Positive Step for Homeowners and Borrowers
Although there will likely be no significant changes to fixed mortgage rates in the short term, this rate reduction is seen as a positive step towards alleviating the financial pressure on mortgage holders, borrowers, and homebuyers across British Columbia. Variable Rate Mortgages and Home Equity Lines of Credit will benefit from this rate drop as the prime lending rate decreases.
“A rate cut is crucial to provide the first steps of relief to mortgage holders and borrowers across the country,” said Angela Calla, President of The Angela Calla Mortgage Team. “We are pleased that the Bank of Canada has begun to ease the financial burden on homeowners and homebuyers.”
Economic Context
The Canadian economy has shown meaningful signs of slowing, with the first-quarter growth rate of 1.7% falling short of the Bank of Canada’s forecast of 2.8% and economists’ estimates of 2.2%, according to Statistics Canada. Inflation has also seen a significant decline. The annual CPI inflation rate peaked at 8.1% in June 2022 but has since fallen to 2.7% in April, comfortably within the Bank’s target range of 1% to 3%.
Due to elevated interest rates, the cost of shelter in British Columbia was up again in April. Homeownership costs increased by 7.2%, and renting costs rose by 7.1%, putting many British Columbians at a tipping point.
Future Rate Cuts
This rate-lowering cycle by the Bank of Canada is unique as it isn’t a response to a global crisis, which has been the norm in recent history. Instead, we can expect a gradual pace of rate cuts, likely around 25 basis points per meeting, over the next 18 months. The goal is to bring the policy rate into the Bank’s estimated neutral range of 2.25-3.25%. Economic conditions will dictate the ultimate rate, with a baseline expectation of 2.75%. However, if the economy performs worse than expected, the rate might drop below 2.25%, while more persistent inflation could halt the cycle above 3.25%.
Impact on Mortgage Rates
The impact of the Bank of Canada’s rate cuts on fixed mortgage rates may not be substantial. Since late 2023, the bond market—and by extension, the mortgage market—has anticipated falling policy rates. This means that the expected rate cuts are likely already reflected in current 5-year fixed mortgage rates.
For variable rates, current market pricing is around prime minus 60 basis points. If this discount persists, it will require seven rate cuts, or 175 basis points, for the average variable rate to fall below the average 5-year fixed rate.
Savings for Homeowners
With the recent rate reduction, homeowners with Variable or Adjustable Rate Mortgages and Home Equity Lines of Credit can expect to save approximately $13 per $100,000 of their mortgage amount. The exact impact will vary depending on your lender product and terms. You will see most Banks Prime Rate go from 7.20 to 6.95
Questions About Your Mortgage?
Understanding how these changes affect your mortgage can be complex. For a personalized review and to explore your options, reach out to us directly. We’re here to help you navigate these changes and make the best decisions for your financial future. Reach out to us at angela@countoncalla.ca or 604-802-3983.
Additional Information to Note
The next scheduled date for announcing the overnight rate target is July 24, 2024. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the Monetary Policy Report (MPR) at the same time. For more details, you can read the full Bank of Canada Release.
Angela Calla is an 19-year award-winning woman of influence which sets her apart from the rest. Alongside her team, Angela passionately assists mortgage holders in acquiring the best possible mortgage. Through her presence on “The Mortgage Show” and through her best-selling book “The Mortgage Code“, Angela educates prospective home buyers by providing vital information on mortgages. In light of this, her success awarded her with the 2020Business Leader of the Year Award.
Angela is a frequent go-to source for media and publishers across the country. For media interviews, speaking inquiries, or personal mortgage assistance, please contact Angela at hello@countoncalla.ca or at 604-802-3983.
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