Variable Mortgage Rates Take a Dip – What It Means for You

Bank of Canada reduced the overnight rate by 0.25%, bringing it from 2.75% to 2.50%. Which for most lenders will bring the Prime rate from 4.95% to 4.70%

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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%. Keeping your rate at 5.45%. Where if you have a Variable/Adjustable Rate Mortgage, it typically ranges from Prime - .50% to -1.10% keeping the current rates at 3.85% - 4.45%.

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.

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Whats to come??

Source: First National - one of Canada's largest non-bank mortgage lenders, offering both commercial mortgages and residential mortgage solutions.

The Bank of Canada announced today that it is reducing its benchmark interest rate to 2.50%, from 2.75%. This marks the first rate cut since March and reflects the Bank’s expert interpretation of current economic data and trending conditions.

We summarize the Bank’s observations and its outlook below.

Canadian economic performance and housing

• Canada’s Gross Domestic Product declined by about 1.5% in the second quarter, as the Bank expected, with tariffs and trade uncertainty “weighing heavily” on economic activity

• The Bank noted that exports fell by 27% in the second quarter, a sharp reversal from first-quarter gains when companies were “rushing orders” to get ahead of tariffs

• Business investment also declined in the second quarter

• Consumption and housing activity both grew at a healthy pace

• In the months ahead, slow population growth and the weakness in the labour market will likely weigh on household spending

Canadian inflation and outlook

• Inflation measured by the Consumer Price Index (CPI) was 1.9% in August, the same as when the Bank issued its Monetary Policy Report in July

• Excluding taxes, inflation was 2.4%

• Preferred measures of core inflation have been around 3% in recent months, but on a monthly basis, the upward momentum seen earlier this year has dissipated

• A broader range of indicators, including alternative measures of core inflation and the distribution of price changes across CPI components, continue to suggest underlying inflation is running around 2.5%

• The federal government’s recent decision to remove most retaliatory tariffs on imported goods from the US will mean less upward pressure on the prices of these goods going forward

Canadian employment and wages

• Employment has declined in the past two months with job losses largely concentrated in trade-sensitive sectors, while employment growth in the rest of the economy has slowed, reflecting weak hiring intentions

• The unemployment rate has moved up since March, hitting 7.1% in August, and wage growth has continued to ease

Global economic performance

• Global economic growth is showing signs of slowing after remaining resilient to sharply higher US tariffs and ongoing uncertainty

• In the United States, business investment has been strong but consumers are cautious and employment gains have slowed

• US inflation has picked up in recent months as businesses appear to be passing on some tariff costs to consumer prices

• Growth in the euro area has moderated as US tariffs affect trade

• China’s economy held up in the first half of the year but growth appears to be softening as investment weakens

• Global oil prices are close to their levels assumed in the July

• Financial conditions have eased further, with higher equity prices and lower bond yields

• Canada’s exchange rate has been stable relative to the US dollar

Rationale for rate cut and outlook commentary

The BoC noted that with a weaker economy and less upside risk to inflation, it judged that a reduction in the policy rate was appropriate to better balance risks. Looking ahead, the Bank said that the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity. Governing Council said it is proceeding carefully, “with particular attention to the risks and uncertainties.”

The Bank also reported it will assess how exports evolve in the face of US tariffs and changing trade relationships; how much this spills over into business investment, employment, and household spending; how the cost effects of trade disruptions and reconfigured supply chains are passed on to consumer prices; and how inflation expectations evolve.

Final comments

The Bank concluded by saying it is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. It reassured Canadians that it will “support economic growth while ensuring inflation remains well controlled.”

Stay Tuned

Next Schedule Interest Rate announcements will be October 29th, 2025