Bank of Canada could bring interest rate to 3.25% this week
Senior CIBC Economist Andrew Grantham told us that Friday’s job data was the final piece of the puzzle before this week’s BoC decision.
“Even though the piece didn’t fit perfectly, we still see the picture of a struggling economy that needs the help of another 50-basis-point reduction in rates,” he said in an email.
Earlier last week, former Bank of Canada governor Stephen Poloz said Canada is already in a recession.
“I would say we’re in a recession; I wouldn’t even call it a technical one,” he stated in a webinar. “A technical one is a superficial definition that you have two-quarters of negative growth in a row, and we haven’t had that, but the reason is that we’ve been swamped with new immigrants who buy the basics in life, and that boosts our consumption enough.”
Housing and mortgages
Rising inflation and the possibility of higher tariffs have made for a pretty volatile bond market. Add to that a slower easing pace from the US Federal Reserve.
“As a result, Canada’s five-year government bond has hovered around the 3% range following the US election. That’s kept a firm floor under fixed mortgage rates, which could tick higher in the coming weeks if yields stay elevated,” Graham shared.
“From a home buyer’s perspective, it’ll get more affordable to enter the market as lenders’ prime rates – and by extension, variable mortgage rates – will lower again following the BoC’s announcement. Combined with new amortization and insured down payment reforms coming into force on December 15, this could lead to a hot January selling season once the holidays are in the rearview. Anyone shopping for a new mortgage or coming up for renewal on their existing term should connect with a mortgage professional to determine their strategy as the market heats up.”
Experts anticipate many more rate cuts from the BoC in the coming year. This will lead to savings and investing product rates to whittle down further, says Graham.
If you’re an investor, your returns will likely be smaller in the coming months.
Mortgage changes: An example
The following calculations are based on Ratehub.ca’s mortgage payment calculator.
Hypothetical situation: A homeowner puts a 10% down payment on a $696,166 home (the average price of a home as of October) with a five-year variable rate of 4.85% amortized over 25 years (total mortgage amount of $645,972) and has a monthly mortgage payment of $3,702.
If the BoC announces a 0.25% cut, the homeowner’s variable mortgage rate will decrease to 4.60%, and their monthly payment will decrease to $3,611. They’ll pay $91 less monthly, or $1,092 less yearly, on their mortgage payments.
If the BoC announces a 0.5% cut, the homeowner’s variable mortgage rate will decrease to 4.35%, and their monthly payment will decrease to $3,522. Thus, the homeowner will pay $180 less per month or $2,160 less per year on their mortgage payments.
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