12 Sep How the Recent Bank of Canada Rate Cut Affect Your Mortgage Payment?

The Bank of Canada’s third consecutive rate cut means the main interest rate is currently at 4.25 percent, down from the previous 4.50 percent. It’s believed that the cumulative 75-basis-point reduction will encourage more buyers to return to the market, while others will wait for interest rates to fall even further. 

The rate cut will provide relief to homeowners with existing mortgages and will provide more options to borrowers whose mortgages are up for renewal, as well as those ready to enter the market for the first time.

What does this mean for variable mortgage rates?

Variable rate mortgages are becoming more popular as individuals are waiting for future rate reduction. The recent cut will provide immediate relief to people whose payments vary with interest rates. It is expected that the rate reduction amounts to around $15 per $100,000 borrowed each month. 

A homeowner who makes a 10% down payment on a $962,537 home with a five-year variable rate of 5.55 percent amortized over 25 years will pay approximately $130 less per month, or $1,560 less per year. Though it is not significant, borrowers who are experiencing financial stress would appreciate this rate reduction.

How does this affect mortgage renewals?

Homeowners whose current mortgage rate is in 10’s will still have their interest rate double, though it will be significantly lower after the rate cut. The cut gives them more renewal options, such as extending their amortization period or switching to a variable rate mortgage. 

First-time buyers may be able to qualify for mortgages after an interest rate drop. A 25 basis point reduction might get them $20,000 extra in a mortgage.

How will it help first-time home buyers?

In the short run, lower interest rates may help more first-time buyers qualify for mortgages. A 25 basis point reduction might qualify them for an additional $20,000 in a mortgage.

While this isn’t enough to upgrade from a condo to a townhouse, it may assist you acquire more square footage. If the borrowing rate falls, demand for housing and prices will grow, making it difficult for first-time buyers to enter the market.

Since prices are not expected to rise, more people will be able to meet the mortgage stress test as interest rates fall. The rate reduction is supposed to benefit individuals who are close to affording a property.

What does this signify for home prices?

Interest rate reduction and house prices may not always coincide; but, when interest rates fall, demand and prices may rise. Real estate sales normally rise in the fall, and lower loan rates may provide an additional boost.

The recent rate drop will have an impact on prime lending rates, as well as vehicle loans, credit card rates, and other debts. That may assist to reduce financial stress caused by inflation. More people being able to buy homes may eliminate some of the pressure on the rental market.

To know more about the latest rate reduction and how it’s going to impact new and current mortgage holders, feel free to talk to our mortgage brokers in Abbotsford. Visit us or give us a call today.