On March 12, 2025, the Bank of Canada announced a 25 basis point reduction in its benchmark interest rate, bringing it to 2.75%.
This is the seventh consecutive rate cut, totaling 225 basis points since the central bank began its rate-cutting cycle in June 2024.
But what does this mean for consumers, and more specifically, for those who have or are seeking a mortgage? Let’s break it down and do the math.
Why Did the Bank of Canada Cut Interest Rates?
Essentially, the Bank of Canada is aiming to stimulate the economy with lower interest rates, encouraging credit and investment in light of the current economic context marked by trade tensions with the United States.
This situation has created uncertainty around global growth and the impact of new tariff policies, which is why the Bank of Canada is trying to create some stability and confidence by reducing interest rates.
Economists like Andrew Kelvin from TD Securities suggest that future cuts will depend on how economic indicators evolve.
Doug Porter from BMO Capital Markets, on the other hand, notes that the drop in business confidence due to trade disputes made this rate cut expected.
Why So Many Rate Announcements?
The frequent rate announcements signal that the Bank of Canada is actively responding to a rapidly changing economic environment.
With global tensions, fluctuating inflation, and uncertain growth, the Bank is making adjustments in real-time to ensure that the economy stays on track.
While this may create some uncertainty, these announcements also offer valuable insight into the bank’s strategy to maintain stability and foster economic growth.
How Does This Impact Mortgages?
Interest rates directly affect mortgage loans, especially those with variable rates.
- Variable Rate Mortgages
With the new rate reduction, the bank’s prime rate drops to 4.95%, meaning many homeowners with variable-rate mortgages will now pay between 3.95% and 4.65%, depending on the discount they have off the prime rate.
This provides relief for those with this type of loan, as they will see a reduction in their monthly payments.
- Fixed Rate Mortgages
The bond market, which influences fixed rates, has seen declining yields, leading some banks to start lowering fixed mortgage rates.
In the coming days, 5-year mortgage rates for insured loans (with less than 20% down payment) are expected to be between 3.79% and 3.89%, while rates for conventional loans (with 20% or more down payment) could range between 3.99% and 4.19%.
If you’ve been waiting to switch from a variable-rate mortgage to a fixed one, now might be a good time to contact us at UCC Mortgage Co. for personalized advice and the best options.
If they offer you a fixed rate below 4%, it could be worth locking in that stability in your payments.
So… Is It a Good Time to Buy a House?
For those looking to buy a property, the rate cut means greater purchasing power.
The criteria for variable-rate mortgage loans have been relaxed, allowing buyers to qualify for higher loan amounts.
This could increase demand in the real estate market during the spring and summer of 2025.
However, it’s important to keep in mind that, although rates are going down, inflation and trade tensions could have unpredictable impacts on the economy.
Buyers should carefully assess their financial situation and consult with experts before making a decision.
What Can We Expect in the Coming Months?
The next monetary policy announcement from the Bank of Canada is scheduled for April 16, 2025.
Before that, two key inflation reports will be released (on March 18 and April 15), which could influence the next decision by the central bank.
At UCC Mortgage, we are always ready to have a personalized conversation and provide you with the best options, focusing on your peace of mind and financial well-being.
Homeowners and potential buyers should stay informed and consider all their options before committing to a mortgage.
A changing market requires well-thought-out financial decisions!
