The Bank of Canada cut its key interest rate for the seventh consecutive time, providing relief for variable-rate mortgage holders, but it won’t be enough to get a flood of homebuyers back into the spring market, experts say.
On Wednesday morning, the bank reduced the policy rate by 25 basis points, bringing it to 2.75 per cent from three per cent, as the U.S. trade war threatens to plunge the economy into a recession.
“The Bank of Canada’s rate cut is a positive step, but it’s not going to dramatically change the spring housing picture,” said Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert.
She said trade tensions and worries about a recession are making buyers hesitate.
“While the rate cut helps a bit, it probably won’t be enough to get homebuyers feeling confident enough to jump into the market this spring,” she said, noting buyers on the sidelines will likely continue to wait.
Penelope Graham, mortgage expert at Ratehub.ca, said the central bank’s rate cuts have offered relief for homebuyers, calling it a “silver living” to the current economic situation, “but it’s not great news as to why the Bank of Canada is cutting.”
Before the U.S. trade war began, the Bank of Canada was going to hold its key interest rate, but now the central bank is on the defence, providing stimulus to offset the economic fallout, Graham said.
Already, the flip-flopping on tariffs by the U.S. has damaged consumer confidence and hit businesses — with job losses already reported in some sectors.
“Consumer activity is restrained, so there’s already the need for stimulus (from the bank),” she added.
While economic uncertainties weigh on Canadians, variable-rate mortgage holders will see a decrease in their monthly payments.
Before the cut, a $1.08-million Toronto home (the average sales price in February) with a variable rate of 4.35 per cent would see monthly payments of $4,730. Now, with a variable rate of 4.2 per cent, monthly payments become $4,659 — a $71 decrease per month. The calculation is based on 20 per cent down payment and 25-year amortization, according to LowestRates.ca.
For every 25-basis-point decrease, variable-rate mortgage holders will pay approximately $15 less per $100,000 in monthly payments, said Victor Tran, Ratesdotca mortgage and real estate expert.
Since the Bank of Canada began cutting rates in June 2024, the overnight rate has decreased by 225 basis points, meaning that variable-rate mortgage holders will have seen a decrease of approximately $120 per $100,000 in monthly payments, he added.
“We are likely to see continuing downward trends in mortgage interest rates and increased competition between lenders for mortgage business,” Tran said. “Last week lenders began cutting fixed rates in response to ongoing downward trends in the bond yield market, with some posted rates for certain mortgage products below 4 per cent.”
Fixed-rate mortgages already dropped on March 3, before the tariffs were implemented, as the bond yields dropped to 2.5 per cent due to investor fears the tariffs would come into force. Five-year fixed rates ticked down to 3.84 per cent but have since climbed back up to 3.89 per cent, Graham said.
“Will lenders continue to keep discounting? We’re keeping a close eye on it,” she said. The bond market is unpredictable as it reacts to the ever-changing geopolitical landscape — bond yields could experience more downward pressure, but if trade policy “firms up” then bond yields could recover quickly, she added.
For homebuyers who have purchased or are about to, it’s better to lock into a mortgage rate now with the option to change it closer to closing.
“The sooner you make a move the more options you’ll have,” Graham said.
