Interest Rate Relief: What The Recent Rate Drop Means For Canadians

For the first time in over four years, the Bank of Canada lowered the benchmark interest rate by 0.25% on June 5, 2024. The benchmark rate now sits at 4.25% while the prime rate is now 6.95%. The last interest rate reduction was in March of 2020, when the BoC slashed the rate to an all time low of 0.25%. In March of 2022, the BoC changed directions and began one of the steepest rate hiking cycles in history. By July of 2023, the benchmark interest rate increased a staggering ten times to 5%, which was a two decade high.

Canadians have been anticipating this month's rate cut for a while, as inflation and GDP continues to slow. According to the Bank of Canada, many economic factors pointed towards a slowing economy, suggesting that Canada's monetary policy no longer needs to be as restrictive. Homeowners with variable rate mortgages or a home equity line of credit will immediately benefit from this rate cut. Although Canada's benchmark interest rate is not directly tied to fixed-rate mortgages, it is expected that fixed-rates will also drop. Fixed-rates are tied to yields for Government of Canada bonds, which have dropped and are currently hovering around 3.4%. This will translate into lower fixed-rate mortgages in the short term.

Many believe that this rate cut is not significant enough to make any noticeable changes for most Canadians, however it is a step in the right direction. The lower rate will slightly increase purchasing power for homebuyers, but more importantly, it should prompt more confidence in the real estate market and begin to fuel price appreciation. As real estate prices and demand in the GTA has remained stagnant for some time, June's rate cut is expected to bring positive change to the market.

If you are a homebuyer, take advantage of the lower rates but don't wait too long, as prices will begin to creep up as more rate reductions come. If you are a seller, now may be the time to list your property for sale as buyer demand picks up. Whether you are considering upsizing, downsizing, investing or anything in between, reach out to me for expert guidance.