On March 12, 2025, The Bank of Canada (BoC) lowered its overnight lending rate by 25 basis points to 2.75%, marking it’s seventh consecutive rate cut since May 31st 2024, and a full 225 basis points lower since that time.Context
In the midst of escalating trade tensions between Canada and the United States, surrounding U.S tariffs on Canadian exports, and retaliatory measures on U.S imports, consumer confidence has decreased amidst the uncertainty. The BoC has taken swift action in attempt to mitigate the economic fallout and restore consumer confidence by encouraging borrowing and spending through the latest rate cut.
Impact on Borrowers
Variable-Rate Mortgage Holders
Borrowers with variable rate mortgages will see their payments immediately decrease, with prime rates at most lenders dropping to 4.95%. Whenever the BoC adjusts rates, variable mortgages are quick to follow suit, with the recent cut reducing monthly payments. Variable mortgage rate pricing is set based on a lender’s spread to prime, plus or minus a percentage from the prime rate. Whilst homeowners may be benefiting from the increased savings, uncertainty in the market may change that.
Fixed-Rate Mortgage Holders
As fixed mortgage rates do not directly respond to the BoC’s policy rate changes, rather by Government of Canada bond yields, the recent rate cut did not have a direct impact on fixed-rate mortgages – however the bond yields often mirror the movements of the overnight rate. On March 3, 2025, Canada’s five-year government bond yield dropped to the lowest level since July 2022 – at 2.5%. Lenders have responded with insured five-year fixed term now as low as 3.89%. The current market landscape has more homeowners taking advantage of locking in at lower fixed rates, whilst homeowners approaching mortgage renewal are looking to take advantage of conditions.
Home Equity Line of Credit (HELOC) Borrowers
HELOC borrowers will also benefit from lower interest rates as they are also tied to prime rates. As such, this makes HELOCs more attractive for home improvements or debt consolidation.
Considerations for Buyers and Homeowners
Whilst lower rates make homeownership more attainable, buyers should also carefully assess their financial situation and future rate expectations. Stress-testing mortgage payments against potential future rate hikes is a prudent step to ensure optimal decision-making. Existing homeowners may find this to be an opportune time to refinance and secure lower rates, particularly for those with impending renewals.
Considering purchasing a new home? Our expert advisors are here to help you navigate the changing market conditions. Give us a call at 604.695.1000 or Contact Us to discuss your options and start your new homeownership journey today!