In a climate of sky-high interest rates, all eyes will be on the Bank of Canada this Wednesday, June 5th, as Canadians from coast to coast anticipate the possibility of some relief (however small that may be) on the interest rate front. Canada’s central bank is scheduled to make its next borrowing rate announcement on Wednesday at 10:30am ET. The rate has been held at 5% since July 2023 – something that’s impacted everything from new condo launches, to home prices and transactions across the country.
For weeks now, economists from the country’s most influential banks have forecasted the possibility of a (slight) rate cut of 25 basis points (to 4.75%) with the arrival of the warmer weather. While some – like RBC economists Claire Fan and Nathan Janzen – say this will likely happen this week, others offer a more cautious forecast of July 24.
“This is a big announcement, because there is a chance that we get the first rate cut since March 2020,” says James Larid, Co-CEO of Ratehub.ca and President of CanWise mortgage lender. “Experts are split on whether we will see our first rate cut in over four years this week. Those who don’t think the Bank will cut next week think that it will happen in the July announcement.”
It's safe to say that the spring showers didn’t bring the usual flurry of activity in Canada’s real estate market this year, and persistently high interest rates are largely to blame. With that said, the relaxing of the rates in the coming months is expected to be slow and steady. So, it’s unlikely that a summertime rate cut of the expected 25 basis points will open the floodgates to a slew of would-be buyers who’ve been waiting on the sidelines. But, you never know.
“If we do get our first rate cut next week, it will be interesting to see if heat returns to the real estate market across the country or perhaps a quarter point cut will not be enough to fuel the fire,” says Laird. “With most real estate markets balanced and some in buyers’ markets, those shopping for a home should decide whether they should attempt to find something ahead of this potential first rate cut.”
As for existing homeowners with variable-rate mortgages, a rate cut of any size means monthly savings – if even a hundred dollars to put towards the ever-pricey grocery bill.
“Anyone with a variable-rate mortgage or home equity line of credit (HELOC) will be watching this announcement closely to see if they can finally get some rate relief,” says Laird. “Fixed rates will likely remain unchanged regardless of whether the Bank cuts or not, since rate cuts are already priced into the current bond market.”
So, what exactly does the rate cut mean for Canadians from a dollars perspective?
The Average Canadian Homeowner
According to Ratehub.ca, a homeowner who put a 10% down payment on a $703,446 home (the average cost of a home in Canada in April 2024) with a five-year variable rate of 5.95% amortized over 25 years (total mortgage amount of: $652,727) currently has a monthly mortgage payment of $4,157.
If Canada’s central bank announces a 25-basis points rate decrease next week, their variable mortgage rate will decrease to 5.70% and their monthly payment will decrease to $4,061.This means that the homeowner will pay $96 less per month, or $1,152 less per year on their mortgage payments.
The Average Ontario Homeowner
According to Ratehub.ca, a homeowner who put a 10% down payment on a $900,161 home (the average home price in Ontario for April 2024) with a 5-year variable rate of 5.95% amortized over 25 years (total mortgage amount of: $835,259) has a monthly mortgage payment of $5,319.
If the Bank of Canada announces a 25-basis point rate decrease on Wednesday, their variable mortgage rate will decrease to 5.70% and their monthly payment will decrease to $5,196. This means that the homeowner will pay $123 less per month or $1,476 less per year on their mortgage payments.
