On March 12th, the Bank of Canada lowered the overnight rate again, cutting its policy rate by another .25%, to 2.75%. If you have a variable-rate mortgage or a secured or unsecured line of credit, you should see a decrease in your effective interest rate shortly.
How does this affect you?
The majority of lenders will be dropping their prime rate to 4.95% from 5.20%, typically within just a matter of days, which will have the effect of bringing down the interest cost for many borrowers. TD Bank, is one of the few outliers, as they typically set their prime rate .15% higher than most lenders and we expect that they will lower their prime to 5.10%.
If you have a variable rate mortgage with a balance of $300,000, you will save approximately $42 per month, or roughly $14 for every $100,000 of mortgage balance, assuming a 25-year amortization. Following the decrease, $42 more of your payment will now go towards your principal balance, which results in you effectively lowering your amortization without increasing your payment.
If you have a fixed-rate mortgage, there will be no effect, but hopefully it will bode well for lower rates when it is time for you to renew down the road.
If you are shopping for a new mortgage, either to finance or purchase a home, variable-rate mortgages still appear to be an option to consider strongly.
Where are we headed?
All signs seem to point to further rate cuts. The Bank of Canada’s next scheduled rate decision is on April 16th. The key factors that will influence their decision on future rate cuts will continue to be inflation numbers, along with the overall strength of the economy, both of which have the potential of being influenced by the threatened U.S. tariffs on Canadian products. Even in-light of the tariff uncertainty, smart money is still betting on several more rate cuts throughout the year.
If you would like to discuss how these changes could affect your current mortgage decisions, let me help!