BoC announcement Oct. 23, 2024

2024-11-07 | 08:57:22

Today, we will talk a little bit about the larger (50 bps) rate cut that was announced a couple weeks ago and how it is affecting borrowers.  Among consumers, there is a lot of misunderstanding when it comes to the Bank of Canada rate and how it affects fixed rates.

Variable Rate Mortgages and HELOC’s

The big banks followed the BoC announcement and reduced their prime rate by 0.50% last week to 5.95%.  This will immediately be reflected in the interest rates of Variable Rate mortgage holders or those with a home equity line of credit (HELOC).  There is high expectation that there will be another rate cut in December and they will continue on this cycle into the new year.  Economists are calling for another 100 - 175 bps in cuts over the next year or so which would reduce the prime rate to 4.20 - 4.95% at most major lenders.

Fixed Rate Mortgages

Although many consumers have been hoping for a drop in fixed rates, these are based on the Bond market and not the BoC rate.  The Bond market has seen little change since the announcement because the rate drop was so largely predicted.  Over the last 6 months the Canada 5 year government bond has already dropped more than 80 bps and we have seen fixed rates reflect this.  As it says in this article, “In order for fixed rates to fall much more, markets need to believe inflation will substantially undershoot target and unemployment will spike. The jury’s out on those.”