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!