Rate Relief: How the Bank of Canada’s Latest Rate Cut Impacts Your Mortgage

Last month, the Bank of Canada gave us a little more breathing room—a cut to the overnight lending rate, bringing the Prime rate down to 5.95%. For those with variable-rate mortgages, HELOCs, or personal lines of credit, this means you’ll either see your payments decrease or have more of each payment going toward paying down your loan’s principal. Nothing to complain about either way, right?

When your mortgage or line of credit is tied to the Prime rate, it’s always good news when rates drop—and not so great when rates rise. During the pandemic, the Prime rate fell to a low of 2.45%. If you were one of the lucky ones with a mortgage contract rate of Prime -1%, you would have enjoyed a blissful 1.45% interest rate until rates started climbing back up. The Prime rate hit a 22-year high of 7.2% in July 2023, but thankfully, it’s now trending down to 5.95%—not quite as dreamy as those pandemic lows, but moving in the right direction.

What Does This Mean for You?

1. Savings for Variable and Adjustable-Rate Mortgages

• Adjustable-Rate Mortgages: When rates go down, your monthly payments go down, too. With a $500,000 mortgage, this cut could mean about $150 less per month—and a little more cash in your wallet!

• Fixed-Payment Variable-Rate Mortgages: Your payment amount stays the same, but more of it goes toward paying down the principal, helping you chip away at your mortgage faster. Not bad, right?

2. HELOC and Line of Credit Savings

If you have a Home Equity Line of Credit (HELOC) or personal line of credit tied to the Prime rate, you’ll see some savings here, too.

• HELOC Example: For a $37,500 HELOC balance, this rate cut could save you around $18 per month, or roughly $216 a year. Every bit helps when it comes to knocking down debt!

And What If You Have a Fixed-Rate Mortgage?

For those with a fixed-rate mortgage, the rate cut won’t impact your payments right now since fixed-rate mortgages keep the same rate throughout the term of your contract. But if rates continue to drop, you might score a lower rate at renewal—something to look forward to!

What’s Next?

Economists expect a few more rate cuts through 2024 and 2025. The Bank of Canada’s next meeting is on December 11, and there’s talk of another 0.5% cut. If that happens, more savings could be on the horizon!

If you have questions, I’m here to help you make sense of it all and plan the best moves for your financial future