This last Bank of Canada rate announcement of 2024 gives us another 0.50% cut to the central bank rate bringing it to 3.25% which is at the top-end of a neutral rate. Most mortgage lenders will now have a Prime lending rate of 5.45%. It is important to note that while we see 3.25% in the news, we generally have to add 2.2% and that’s the Prime lending rate that affects Variable rate mortgages.

To put it simply, 3.25% is now the rate that banks/lenders can borrow money. They then add 2.2% to it to determine Prime (now 5.45%) and they either attach a discount or a premium to Prime to determine the effective lending rate for variable rate mortgages or home equity lines of credit. Some banks add more than 2.2% and have higher Prime lending rates. I’m always happy to chat more in detail about this as it can be confusing.

Since June 2024, Prime has come down by 1.75% from 7.2% to 5.45%, which delivers some much-needed relief to Canadians. This impacts all forms of variable interest rates including credit cards and lines of credit.

For Adjustable Rate Mortgages (ARM), for every $100,000 owed, our payments decrease by approximately $13/month. Since June, we have seen the equivalent of seven (7) cuts of 0.25%. For a $500K mortgage, this translates into savings of approximately $455/mo. This is significant not only for those of us currently in an ARM or HELOC, but it also helps with qualification for new mortgages. Contact me if you have any questions about this.

It’s important to note that depending on when your next mortgage payment is scheduled for, you might not see this payment decrease until well into January. Don’t fear though, the savings in interest will be applied to your principal until your payments are adjusted.

What does this mean for you?

• Adjustable-rate mortgage holders: You’ll see a slight drop in your mortgage payments, giving you extra cash flow every month. (see above)
• First-time buyers: Lower rates mean increased borrowing power, making it a great time to find your dream home.
• Upcoming renewals: If your mortgage renewal is on the horizon, this lower rate could work in your favor and ease your financial planning.
• Possible interest savings strategies: If you are in a fixed rate mortgage over 5%, there could be an opportunity to make adjustments to your mortgage and save you money.

No matter your situation, this is positive news for Canadians nationwide. If you have any questions about how this rate change impacts your mortgage or plans, don’t hesitate to reach out—I’m here to help!

Now, for those of you who are more analytical and would like some of the headlines broken down, read on…

Why the second half-point cut in a row?

Simply put, it’s due to bad news in the economy. The sad reality is that bad economic news = good news for interest rates.

However, let’s start with the good news first. Inflation is hovering at the BoC’s target of 2%. If you remove mortgage interest from this number we are closer to 1.4%. There will always be ebbs and flows. For instance, Taylor Swift inflation is real! Hotels, restaurants etc. all increased prices in cities where she played. Google “Taylor Swift Inflation” and you’ll see headlines from the UK and Sweden… of course, this is temporary. I digress. Another temporary inflationary item in Canada is the pause on GST/HST from December 14, 2024 – February 15, 2025. The Bank of Canada understands these things will not have a long-term impact on inflation and still went ahead with the larger cut today.

Declining Productivity & Flat GDP

Canada currently has the second lowest measure of productivity growth of G7 countries, second to Italy. What’s more disturbing is that Canada’s GDP per capita is lower than all individual US States, with the exception of Mississippi. The BoC is paying close attention to GDP and the plans for restricted immigration will have a further adverse effect, according to Bank of Canada Governor Tiff Macklem.

Government Spending

Government spending is hugely inflationary and most of their spending is not investing in productivity, which is what we desperately need. Our Feds will be doling out handouts of $250 to all working Canadians and Ontario will be providing a $200 taxpayer rebate in 2025. This is an example of spending that is not investing in overall productivity, which will establish long-term benefits. Why not instead invest in healthcare, education or transportation ie) high speed rail routes between major and emerging city centres? In my humble opinion, one word comes to mind. Votes.

Government spending is outpacing GDP by a long shot. We have had 5 consecutive quarters of flat GDP growth at 2.1% while the Federal Government deficit growth is up 23%. The deficit is up from $11.9B in 2019 to $50.9B!

If it weren’t for profligate government spending, the BoC likely would have raised the key lending rate from 1.75% to around 3% but, they overshot and went to 5% (translating to a Prime rate of 7.2%) which has led to a lot of non-mortgage delinquencies this year.

Interest Payments, Insolvency Rates & Unemployment

Interest payments are eating up Canadians’ incomes more than since 1992 and we are now paying more than double the interest payments since 2019, pre-pandemic.

Insolvency for non-mortgage debt in Canada is up 13.5% in Q3 of this year vs the same time in 2023 and in Ontario it’s up by 20.2%. Business insolvencies are up 16.2% nationally and 40.2% in Ontario.

Furthermore, Property Development receiverships are on pace for a record year in 2024 with more construction and real estate insolvency filings ever…. All amidst a critical housing shortage. There is a massive disconnect here and we need fast-acting effective programs to correct this. Not Good.

Unemployment rate for November 2024 was measured at 6.8% which is the highest reading since September of 2021.

The Trump Threat

Headlines have shared with us that the Canadian Dollar is down to $0.70 from $0.73 since June, compared with every US $1 . The fact that the BoC still gave us a 0.50% cut signals that other factors are more pressing and the risk of a lower CAD dollar is not as important as countering other issues. In fact, the BoC views this rate cut as a form of insurance against Trump’s threat of a 25% tariff on Canadian goods – which is a major new uncertainty. I like to think he is in large part threatening this to strengthen his negotiation power, as this would be inflationary to the US as well. Time will tell.

How Low Will the Bank of Canada Go?

Well, in years of noteworthy economic crises & struggles, the average rate drop in the span of a 12 month period averages at 2.5%. This would indicate that Prime would be down to 4.70% by June 2025. Remember however, that the BoC overshot, bringing the central rate up to 5% (usually the emergency monetary tightening would be 3%) so this suggests the cuts are not likely to stop there.

I like to say that my crystal ball is on backorder, however it is fairly safe to say that more rate cuts are in store moving into 2025. How low? No one really knows, but in the 10 years between the recovery of the 2008 financial crisis and the start off the in 2020 pandemic, The Prime lending rate hovered between 2.70-3.95% (central bank rate hovered between 0.50-1.75%). There is definitely room to keep the cuts coming.

The next Bank of Canada rate announcement is scheduled for January 29, 2025 and I’ve attached the 2025 schedule for you here. Follow me on FB, IG and LinkedIn for ongoing updates and tips at @jennlockemortgages.

As always, if you have any questions about how this affect you or anyone you know, please contact me and/or share my information. I’m always happy to have a chat and help in any way I can.

Leading up to the holidays, I wish you all a wonderful season of making memories with loved ones.

My very best,

Jenn

Bank of Canada Has Cut 1.25% in 2024 and More to Come We hopeed for it and it happened! This morning, the Bank of Canada’s first ‘oversized’ interest rate cut of -0.50% occurred. This is because the Canadian economy is weaker than they predicted and this signals that they believe inflation is under control. The September 2024 headline inflation rate was down to 1.60% and now, measures must be taken to stimulate the economy. What does this mean for you? If you are a Variable Rate Mortgage holder, the interest rate savings equal approximately $65/mo for every $100K owed. For a $500K mortgage, this will translate to $325/month in savings – this is the same for Home Equity Line of Credit holders. If your mortgage is ‘adjustable’ your payment will decrease come the second payment posted after the announcement. If you pay bi-weekly, the change will occur on the third payment posted after the rate announcement. The payments occurring in between will deliver the interest savings directly to principal before the payment decrease happens. If your mortgage lender doesn’t automatically adjust your payment (ie TD Bank), the savings will be applied to principal and you’ll have to request a payment decrease if you would like one – they will assess this on a case by case basis. Contact me anytime to review your situation. The Bank of Canada is not done yet. The last rate announcement of 2024 is scheduled for December 11th and we widely expect at minimum another 0.25% cut which will bring the Prime lending rate to 5.70% (down from 7.20% in early June). In the meantime, we will be watching what the US FED does on November 7th and we will be paying close attention to how the US Presidential election affects the bond markets and hence Fixed mortgage rates. By mid 2025, it is expected that the Prime lending rate will be down to the mid 4% range and most likely down to mid 3% by 2026. Fixed rates are not directly correlated with the BoC rate announcements, and we expect that we will start to see a more steady decline in the coming months, after experiencing a slight spike in early October. Things are definitely looking positive in the interest rate world and if you or anyone you know would like to chat about options – fixed vs variable, 3 vs 5 year etc., I’m always here and happy to help without obligation. Be well and remain positive! Best wishes, Jenn P.S. THANK YOU to everyone for your votes in August! I’m thrilled to have been named Best Mortgage Broker 2024 for the second year in a row by EloraFergusToday.com‘s Reader Choice Awards. Your support and referrals mean the world to me!

As I’m sure you’ve heard by now, the Bank of Canada has lowered the Prime lending rate by another 0.25% last Wednesday, marking the second consecutive decrease since it’s June 5^th announcement. Most lender’s Prime rates are now sitting at 6.7%, down from 7.2% since June.

The next BoC announcement takes place on September 4^th and most economists are predicting a third consecutive cut. The narrative is that there isn’t a lot of time between then and now for any data to show why a third cut isn’t warranted on Sept 4^th. After that, the remaining announcements on 2024 are scheduled for October 23^rd and December 11^th. The general consensus is that we should see Prime come down by at least another 0.50% this year, which will mark a full 1%.

Finally, inflation in Canada appears to be stabilizing and the Bank of Canada is aware that mortgage interest payments are keeping it inflated above the 2% target. They have realized inflation isn’t a good enough reason to keep rates high. Unemployment is increasing, GDP and retail spending both continue to soften. Also, the cuts so far have not ignited the housing market – these things all bode well for more imminent cuts.

This week, we will all be watching for the US Federal Reserve’s (their counterpart to our Bank of Canada) announcement on Wednesday July 31^st – will they begin cuts this time or will they wait until September 18th? Canada is heavily influenced by the US and the start to their interest rate cuts are imminent.

The only anomaly for Canada’s path to keep cutting in 2024, would be if the US doesn’t cut by September, then the spread between the two countries becomes quite wide, which would then put pressure on the Canadian Dollar. As long as the Fed starts moving, that removes any remaining uncertainty for the Bank of Canada’s remaining 2024 decisions.

For Variable Rate mortgage holders with adjustable payment mortgages, our second regularly scheduled payment will be lowered by another ~ $15/month for every $100K owed – and this happens in the month following the rate decrease announcement.

Bond Yields, which affect fixed rates are looking favourable so with any luck, we will be out of the peaks and valleys very soon, and we will see fixed rates start to stabilize and trend downward.

For a consultation about your options or if anyone you know could benefit from a chat with me, remember I’m always here and happy to help.

After several months of a status quo, inflated rate environment (hence the pause in updates from me), we finally received some long-awaited, much needed good news from the Bank of Canada last week. As I’m sure you’ve heard, on June 5th they cut the key interest rate by -0.25% bringing it from 5.00% to 4.75%. This translates to most lenders’ Prime Rates decreasing from 7.20% to 6.95%. (Some major bank’s Prime rates are higher such as TD went from 7.35% to 7.10%)

What does this mean for Variable Rate mortgage holders? If you are in an Adjustable Rate mortgage (where your payment automatically changes with Prime), this will translate to a reduction in payment of $13-$15/mo for every $100,000 owed.

When will this happen? The majority of lenders adjusted their Prime rate on June 6th and mortgage holders’ payments will adjust on the second regularly scheduled payment following the rate change date.

The big question now moves from “when will rate cuts begin?” to “how many rate cuts will there be?” We can think of it like this: The Bank of Canada took the elevator on the way up and will take the stairs on the way down, potentially with pauses until they reach the bottom.

Optimally, it is expected that by the end of 2024, we will see a total reduction in Prime of -0.75% to -1.00% and by the end of 2025, another -1.00%, bringing it down by a full 2.00% to 5.2%, before 2026 begins. That would translate to a payment reduction of up to $120/month for every $100,000 owed. Of course, no one has a crystal ball and there are many variables that can influence this in a heartbeat, as we have all seen.

Here is a look at where the Prime Rate has been during each decade of the 2000s:

2000s:
High 7.50% (May 2000)
Low 2.25% (April 2009)

2010s:
Low 2.50% (June 2010)
High 3.95% (October 2018)

2020s:
Low 2.45% (March 2020)
High 7.20% (July 2023)
Current 6.95% (June 2024)

What’s in store for Fixed Mortgage Rates?

Fixed rates are influenced by the Canada Bond Yields, which are indirectly influenced by the Bank of Canada’s rate decisions. On June 5th, we saw a healthy decline of Bond Yields (which puts downward pressure on fixed rates), but when the US announced its labour market data, which was positive, Bond Yields rose. This, despite the fact that Canada announced some dismal labour market news on the same day. Overall, after a spike in Fall 2023 and Spring 2024, the 5-year Canada Bond Yields are back to where they were in summer 2023.

Since last week, we have seen a small decrease in several Fixed mortgage rates, with the Prime 5-year Fixed posted rate range being from 4.89% to 5.34% depending on the type of mortgage, length of term etc. If you are in a Variable/Adjustable rate mortgage and if at any time, you would like a rate quote for locking into a fixed rate term, just let me know and I can help to facilitate that for you.

Overall, we do expect a continuance of decreases to all interest rates. With 80% of mortgages in Canada renewing by 2026, many people are nervous about what this looks like for them because rates are definitely higher than mortgage terms that began 5 years ago.

It’s more important than ever to explore your options and know what all of your options are. I’m always happy to have a chat about your specific situation, and help to determine what’s right for you.

If anyone you know could benefit from a chat with me, I’m always here and happy to help. I look forward to connecting soon!