Bank of Canada Rate Cut: What It Means for Your Mortgage

The Bank of Canada has just announced a 0.25% rate cut, lowering its policy rate from 3% to 2.75%. If you have a variable-rate mortgage, this could mean lower monthly payments and potential savings. But not all variable-rate mortgages work the same way, so it is important to understand how this affects you.

How This Rate Cut Affects Your Mortgage Payments

For homeowners with an adjustable-rate mortgage, where payments change when the prime rate changes, here is how this 0.25% cut impacts monthly payments at different mortgage amounts:

• $200,000 Mortgage

  • Previous Payment: $1,186.06
  • New Payment: $1,157.52
  • Monthly Savings: $28.54

• $400,000 Mortgage

  • Previous Payment: $2,472.17
  • New Payment: $2,315.05
  • Monthly Savings: $157.12

• $600,000 Mortgage

  • Previous Payment: $3,558.25
  • New Payment: $3,472.57
  • Monthly Savings: $85.68

• $800,000 Mortgage

  • Previous Payment: $4,744.34
  • New Payment: $4,630.10
  • Monthly Savings: $114.24

What If Your Payments Stay the Same?

Not all variable-rate mortgages adjust the monthly payment when rates change. Some lenders offer static-payment variable-rate mortgages, where the payment stays the same, but the portion going toward interest and principal shifts.

If rates drop and your payment does not change, you will be paying down your principal faster, which can help you become mortgage-free sooner. If rates rise, however, more of your payment will go toward interest, and you could reach a trigger point where the lender requires a payment increase.

Fixed-Rate Mortgages and Other Considerations

If you have a fixed-rate mortgage, this rate cut does not impact your current payments. However, it may present an opportunity to refinance at a lower rate if the numbers make sense. Breaking a fixed-rate mortgage can come with higher prepayment penalties, especially with major banks that calculate penalties using the interest rate differential.

For those considering a new mortgage, today’s lower rate environment may be a good time to review whether a fixed or variable rate makes more sense for your financial situation.

If you want to discuss how this rate cut affects your mortgage or explore refinancing options, reach out anytime.