As you may know, the Bank of Canada reduced the overnight lending rate from 5% to 4.75%. It continues to focus on elevated shelter costs as a significant contributor to inflation. However, it also noted that inflation measures are showing signs of downward momentum and are close to historical averages. To better understand how it works, we have asked one of our mortgage agent partners Lorena Sarnaglia to breakdown the numbers.
Variable-Rate Mortgages - If you’re holding a variable-rate mortgage, this rate cut signals a decrease in interest expenses. For example, for anyone with a variable rate with adjustable payments, you will see payments drop roughly $14 per $100,000 of mortgage (depending on your rate, amortization, etc.)
HELOCs - Interest-only payments would drop almost $21 per $100,000 as well.
Fixed-Rate Mortgages - Unchanged for now, but fixed rates are mainly influenced by the bond market and its expectations of the overnight rate’s direction. As we enter a rate-cutting cycle, bond yields should trend lower from here… and so should fixed mortgage rates.
We from Unna Real Estate Group, believe that the relationship between interest rates and home prices is a critical dynamic in the real estate market. When borrowing costs were at their lowest, home prices skyrocketed due to increased demand. As the overnight lending rate began to climb, the rapid growth in home prices started to slow down, illustrating the direct impact of interest rate policies on the housing market.
It is important to know that if the Bank of Canada reduces interest rates in response to economic conditions, it could stimulate the housing market, potentially reversing the recent price declines. The response of buyers to lower interest rates will be crucial. If confidence in the market remains high and borrowing costs decrease, a resurgence in home prices is likely.
