Effect Of The Latest Rate Cut On Fixed & Variable Mortgages

Want to know how the latest 50 bps rate cut is going to impact your mortgage payments? In its latest announcement, the Bank of Canada (BOC) announced an interest rate drop of 50 bps, taking it to a two-year low of 3.75%. This is surely going to reduce the financial burden to prospective mortgage borrowers for both fixed and variable rate holders.

Impact On Fixed Rate Mortgage Holders

Individuals with fixed-rate mortgages will see no immediate change in their existing payments because their rate is locked in for the duration. However, fixed rates have already dropped in recent months. While the route has not been a straight line, lenders have gradually reduced fixed mortgage rates, coinciding with the continuous decline in Government of Canada bond yields.

While a spike in bond yields earlier this month forced some lenders to hike fixed mortgage rates, analysts predict that the downward trend will continue. Lenders have already begun to cut their fixed rates in response, and the round of fixed-rate hikes should cease soon.

Impact On Variable-Rate Mortgage Holders

If you have a variable-rate mortgage, your interest payments are expected to fall again. Based on a 25-year amortization, today’s rate reduction results in approximately $30 less in monthly payments per $100,000 of mortgage debt. For a typical $400,000 mortgage, this equates to a monthly savings of around $120.

If you add the entire previous rate cuts this year, your monthly savings have almost probably climbed to more than $300 since the Bank of Canada began lowering its policy rate from its high of 5%.

For fixed payment variable rate mortgage holders, the current rate decrease will help to reduce your mortgage principal amount and allow you to pay off the outstanding balance a little faster. After this prime rate drop, adjustable-rate mortgage holders should expect to save $150 per month on a $500,000 mortgage.

Impact On Home Equity Line of Credit (HELOC)

If you have a Home Equity Line of Credit (HELOC) or a personal line of credit, you will also receive discounts. These products are connected to the prime rate, which usually adjusts in concert with the Bank of Canada’s rate rises. As prime rates decline, so will your line of credit’s interest rate, putting more money in your pocket each month.

Borrowers with an average HELOC balance of $37,500 will save around $18 per month as a result of today’s 50 basis point rate drop.

Save More on Mortgages with Satbir Bhullar

Satbir Bhullar Mortgages is your local mortgage broker helping new and existing mortgage holders in saving dollars when it comes to mortgage repayments. We stay updated with the latest rate cuts, mortgage trends, and mortgage news to help our prospective homebuyers in becoming proud homeowners without feeling a financial burden on their pocket. For more details about the recent mortgage rate cut, talk to our Abbotsford and Surrey mortgage brokers.