Donald Trump is on his way in, Justin Trudeau is on his way out.
Inflation is Canada is currently below the target of 2%, while inflation in the U.S has been a more stubborn target.
The American economy has been strong and all indicators appear that it will strengthen over the course of 2025. This is great for their overall economy but not so great for interest rates for our American friends. The Federal Bank is much more cautious in its approach and execution on its rate policy due to current inflation numbers and also in-light of the strong economy.
Here at home, our economy isn’t nearly as robust as our American counterpart and inflation isn’t really on the radar currently. While this is bad for the overall economy, it is good for rates, most notably for those with variable-rate mortgages. On top of this, the looming threat of tariffs has worried the Bank of Canada as to what affect this could have to further weaken the Canadian Economy.
The Bank of Canada has a lot more flexibility in their ability to lower policy rates and by association prime lending rates at the banks and other mortgage providers.
Wed January 29th, once again saw the Bank drop the overnight policy rate by .25% lowering it to 3.00%. This is the sixth consecutive rate cut which will result in lowered borrowing costs for those with variable-rate mortgages and loans.
We anticipate most lenders will lower their prime rates to 5.20% in the next day or two.
Does this affect you?
If you have a variable-rate mortgage: You should see a decrease in your interest charges on your next statement. If your payments are fixed, more of your payment will go towards the principle than interest, paying off your mortgage faster. If your payment adjusts prime, your monthly payment should decrease. As an example, an approximate savings rate of $14 per $100,000 owed could be expected with this rate decrease once applied to your mortgage.
If you have a fixed-rate mortgage: There will be no change to interest rate or payments.
Unsecured Lines of Credit: Depending on your lender you should experience decreases with interest rate charges. If you don’t, ask why not
The next Bank of Canada next rate decision is scheduled for March 12, 2025. At this point of time it is too early to tell what the decision will be, however, even if they hold rates steady everything is pointing to continued cuts throughout the year, albeit as likely at a slower rate than in 2024.
If you’d like to discuss how this change affects your mortgage or explore your options, I’m here to help.