The impact on Canadians with a mortgage
In the short term, at least, this most recent rate cut is positive for mortgage borrowers, whether they’re shopping the market for a new mortgage, or looking to renew their existing mortgage term. With the benchmark rate now 2% below its 5% peak, that’s considerably lowered borrowing costs and taken the pressure off existing borrowers, who will be forced to renew at rates higher than what they took out during their all-time lows in 2021 and 2022.
The impact on variable-rate mortgages
This latest rate cut most directly impacts those with variable-rate mortgages. Those who have an adjustable-rate variable mortgage will see their monthly payment lower immediately. Those who have a variable mortgage but are on a fixed payment schedule will now see more of their payment go toward their principal balance, rather than servicing interest costs.
The impact on fixed-rate mortgages
Fixed mortgage rates, while not directly mandated by the BoC, are certainly influenced by its rate direction. This is because fixed-rate pricing is based on what’s happening in the bond market. And bond investors tend to react favourably to central bank rate cuts, even when they’re already priced in by the market. Following this morning’s announcement, the government of Canada five-year bond yield lowered down to the 2.8% range, its lowest level since December 10, 2024.
Lenders are expected to pass on some discounts as a result. However, there won’t be any drastic downward swings; investor fears over the impact of tariffs and expectations that inflation will remain higher longer term have kept five-year yields trapped in a holding pattern between 2.8% to 3.1% since late last year. Until something happens to ease those concerns, it’s unlikely we’ll see much more downward movement in the bond market, or in fixed mortgage rates.
Check out the rates below to see the current status of mortgage rates in Canada.
What does this mean for the housing market?
This latest rate cut will likely continue to juice housing market demand, which had started to heat back up in the latter months of 2024. Many would-be home buyers had remained on the sidelines over the course of the first half of the year, as interest rates remained elevated. Now that they’re coming down—and home prices have yet to pick back up—many real estate boards, including the Canadian Real Estate Association (CREA), expect a brisk early spring selling season.
In its most recent housing forecast update, CREA states, “The assumption remains that the combination of two and a half years of pent-up demand and lower borrowing costs, together with the usual burst of spring listings will lead to a rebound in market activity across the country in 2025. There was a good preview of what that might look like during the fourth quarter of 2024.”
Of course, this comes with the same caveat of whether incoming tariffs will chill purchasing power—a likelihood, if job losses mount.
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