The Bank of Canada just delivered some exciting news that could affect your mortgage payments. On June 5th, they cut the key overnight lending rate by 25 basis points, bringing it down to 4.75%. This is the first rate cut since March 2020, following a series of rate hikes between March 2022 and July 2023.

What Does This Mean for You?

James Laird from Ratehub.ca explains that we are now in a new phase of rate policy. After a period of aggressive rate changes to manage inflation, we’re now seeing a shift towards a less restrictive approach. If you’re considering borrowing, this could be the start of a more favorable environment for you.

Understanding Variable-Rate Mortgages

A variable-rate mortgage means your interest rate can change over time, depending on the prime rate set by banks. This type of mortgage is great if you can handle some risk and want flexibility. For example, if the prime rate is 4.0% and your mortgage rate is prime minus 0.5%, your rate would be 3.5%. If the prime rate rises to 4.5%, your mortgage rate would increase to 4.0%. Conversely, if the prime rate drops to 3.5%, your rate would decrease to 3.0%.

How Rate Changes Impact Your Mortgage Payments

Zoocasa has crunched the numbers to show you how the recent rate cut affects your monthly payments on a 5-year variable mortgage. Let’s look at some key cities:

• Greater Toronto Area (GTA): Homeowners here can expect their monthly payments to drop by about $155. That’s an annual saving of $1,860!
• Vancouver: Monthly payments could decrease by $166.20, saving homeowners over $1,994 annually.
• Regina: Even in this affordable city, the monthly payment change is around $75.60, saving about $907 annually.

Lower Rates Could Boost the Housing Market

High borrowing costs have kept many prospective buyers on the sidelines. A 2024 Zoocasa survey revealed that 51% of non-homeowners cited high home prices as their main barrier to buying. With lower lending rates, we could see a surge in buying activity.

Carrie Lysenko, CEO of Zoocasa, suggests that now might be the perfect time to explore your options. Lower rates could lead to more sales and potentially higher prices. With more inventory on the market, you have greater negotiating power.

What’s Next?

The Bank of Canada’s next rate announcement is scheduled for July 24, 2024. If further cuts happen, your savings could increase even more. Stay tuned for updates and consider how these changes might benefit your home buying or selling plans.

If you’re in the GTA and thinking about buying or selling, now is a great time to act. Get in touch with a realtor to explore your options and make the most of these favorable conditions!