Rates reduced by 0.50%!!
Bank of Canada reduced the overnight rate by 0.50%, bringing it from 4.25% to 3.75%. Which for most lenders will bring the Prime rate from 6.45% to 5.95%
Now remember, this directly impacts those with a Variable/Adjustable Rate Mortgage. This does not directly impact Fixed Rates.
For Example: If you have a Home Equity Line of Credit, the rate is typically Prime + .50%. So this would bring your rate from 6.95% to 6.45%. Where if you have a Variable/Adjustable Rate Mortgage, it typically ranges from Prime - .50% to -1.10% bringing your current Rate 5.35% - 5.95% and decreasing it to 4.85% - 5.45%
What is the Bank of Canada Overnight Rate?
The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market.
The Bank of Canada holds this Key Lending rate. They might lower it to encourage borrowing and spending OR they may increase it to curb inflation and debt levels.
Major lenders typically raise their prime rate when there is a hike. Thats the number they use to set interest rates for loans and mortgages.
Unlike a fixed rate where one is locked in to their rate, those in a variable rate will be affected by these changes. Home owners with fixed rate mortgages won't be affected until they have to renew.
Should I lock into a Fixed Rate now?
Historically variable rates have shown to save you more money in the long run.
A few things you should consider before locking into a Fixed rate is:
Are you planning to sell your home in the near future? Then we would highly recommend you stay in your variable rate mortgage.
Can your budget handle a payment increase if rates go up?
Will you be putting extra money down on your mortgage each month? If so, the savings from a variable rate can help you pay down your mortgage faster.
If you are considering locking in, give us a call to discuss first. We have a fun little calculator to help you forecast your savings if you decide to stay with your variable rate.
Whats to come??
Source: First National - one of Canada's largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.
To stimulate the Canadian economy, the Bank of Canada today cut its overnight policy interest rate by 50 basis points to 3.75%. This was the Bank’s 7th and penultimate decision of 2024 and means we have now seen four consecutive rate cuts since June – although the latest is the largest.
Below, we summarize the rationale for this move by summarizing the Bank’s observations, along with its forward-looking comments.
Canadian Inflation
Inflation measured by the Consumer Price Index declined significantly from 2.7% in June to 1.6% in September
Inflation in shelter costs remains elevated but has begun to ease
Excess supply elsewhere in the economy has reduced inflation in the prices of many goods and services
The drop in global oil prices has led to lower gasoline prices
These factors have all combined to bring inflation down
The Bank’s preferred measures of core inflation are now below 2.5% and with inflationary pressures no longer broad-based, business and consumer inflation expectations have largely normalized
The Bank expects inflation to remain close to its 2% target over its “projection horizon,” with the upward and downward pressures on inflation “roughly balancing out”
Canadian Economic Performance and Outlook
The Canadian economy grew at around 2% in the first half of the year and the Bank expects growth of 1.75% in the second half of 2024
Consumption has continued to grow but is declining on a per-person basis
Exports have been boosted by the opening of the Trans Mountain Expansion pipeline
The labour market remains soft with the unemployment rate at 6.5% in September
Population growth has continued to expand the labour force while hiring has been modest and this has particularly affected young people and newcomers
Wage growth remains elevated relative to productivity growth
Overall, the economy continues to be in “excess supply”
Canadian Economic and Housing Market Outlook
Canadian GDP growth is forecast to strengthen gradually over the Bank’s projection horizon, supported by lower interest rates
This forecast largely reflects the net effect of a gradual pickup in consumer spending per person and slower population growth
Residential investment growth is also projected to rise as strong demand for housing lifts sales and spending on renovations
Business investment is expected to strengthen as demand picks up, and exports should remain strong, supported by robust demand from the United States
Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026 and that as the Canadian economy strengthens, excess supply will be gradually absorbed
Global Economic Performance and Outlook
The Bank expects the global economy to expand at a rate of about 3% over the next two years
Growth in the United States is now expected to be stronger than previously forecast while the outlook for China remains subdued
Growth in the euro area has been soft but should recover modestly next year
Inflation in advanced economies has declined in recent months, and is now around central bank targets
Global financial conditions have eased since July, in part because of market expectations of lower policy interest rates
Global oil prices are about $10 lower than assumed in the Bank’s July Monetary Policy Report
Summary Comments and Outlook
In today’s announcement, the Bank said that with inflation now back around its 2% target, it decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of its 1% to 3% target range.
It went on to note that “if the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further.” However, it also cautioned that the timing and pace of further reductions will be guided by incoming information and the implications of that information for the inflation outlook.
Ultimately, the Bank said it will take decisions “one meeting at a time.” And added that it is committed to maintaining price stability for Canadians by keeping inflation close to its 2% target.
Stay Tuned
Next Schedule Interest Rate announcements will be Dec 11th, 2024
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