The Bank of Canada announced a cut to the overnight interest rate from 5%, by 25 basis points or 0.25%, to 4.75% on June 5th, 2024.
Starting in March of 2020, rates were steadily cut to a historic low of .25% which held until March of 2022 at which point rates started to increase steadily back up until they hit 5% in July of 2023. The overnight rated held firm at 5% until the recent .25% rate cut on June 5th.
Hopefully this signals the start of a rate cutting cycle that continues throughout 2024 and into next year.
As of June 6th, most banks began reflecting the rate cut with a cut to their own Prime lending rate. Prior to this cut, the Prime Rate at most banks was 7.2%, so most have cut their rate to 6.95%
How does this affect your mortgage?
If you currently have a variable rate mortgage, your interest rate should have dropped by .25%, which has the effect of lowing the interest charge on your mortgage payments. For example, if you have a $500,000 mortgage this would reduce the interest expense on your mortgage by approximately $100 per month.
For new mortgages, this development also makes variable-rate mortgages a more attractive option when compared to fixed-rate products
If you have a Fixed Term Mortgage, you will remain unaffected.
Does the interest rate on Fixed Term Mortgages also decrease by .25%?
Unlike variable rate mortgages which are tied directly to Prime, fixed rated mortgage rates are directly tied to the bond market. The bond market has been pricing in anticipated rate cuts over the past few months which is why fixed-rate mortgages have been decreasing already before any actual decrease in the Prime rate.
Contact your mortgage broker to find out how this affects your current situation or future mortgage needs. Looking for further assistance or advice? Reach out now and we will assist you!