Breaking Down the Bank of Canada’s Interest Rate Cut and Its Impact on Mortgages

June 5, 2024

Bank of Canada Cuts Interest Rates: What This Means for You

Great news this morning! The Bank of Canada has cut interest rates by 25 basis points. While it was a close call with only a 50% chance leading up to the announcement, the Bank decided to provide some early relief to Canadians. This decision comes in light of continued downward trends in inflation, weak GDP growth, and softening employment numbers. The Bank of Canada felt confident that this was the right move.



What This Means for Mortgage Holders

Variable Rate Mortgages: If you have a variable rate mortgage where the payment is fixed, your payment won’t automatically adjust with the interest rate drop. You’ll need to contact your lender to discuss how to reduce your payment.

Adjustable Rate Mortgages: For those with adjustable rate mortgages, where payments fluctuate with changes to the prime rate, your payment will automatically adjust in the next payment cycle.

Fixed Rate Mortgages: It’s important to note that a drop in the prime rate doesn’t immediately translate to a drop in fixed rate mortgages. Fixed rates are influenced by bond yields, so we’ll need to monitor the bond market to see any potential changes.

The Path Forward: Future Rate Cuts

Now that we’ve had this first rate cut, the question is: where do we go from here? In April, the Bank of Canada identified the neutral interest rate—an interest rate that is neither restrictive nor supportive of the Canadian economy—as 3.25%. Currently, after today’s cut, the prime rate stands at 4.75%. This indicates that there is potential for another 1.5% reduction over the coming months and possibly years. This trajectory suggests a trend towards lower interest rates, which will be a welcome relief for mortgage borrowers.

Looking Ahead

The next Bank of Canada meeting is scheduled for July 24th. Expectations for this meeting will be shaped by the economic data released over the next 30 days. Stay tuned for updates, and I’ll share any new information as soon as it’s available.

If you have any questions or concerns, feel free to reach out anytime. Bye for now!

This blog post aims to break down the Bank of Canada’s recent interest rate cut and explain what it means for different types of mortgage holders, as well as the potential future direction of interest rates. Whether you have a variable rate mortgage, an adjustable rate mortgage, or a fixed rate mortgage, it’s important to understand how these changes can impact your payments and financial planning.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.