A tiny slice of relief: How the Bank of Canada's rate cut affects your wallet
June’s sunshine ushered in a little positive news for Canadians this month, with the Bank of Canada cutting the overnight rate from 5% to 4.75%, which means lenders will in turn provide lower prime lending rates. We’re already seeing the effects on mortgage rates in Ontario. Though it’s a small decrease, the reduction in interest will affect borrowing rates for mortgages, home equity lines of credit (HELOCs), and credit cards.
The hot question of the day is whether the impact will be enough to ease the strain on debt-laden Canadians’ pocketbooks, and we hate being the bearers of mediocre news but the answer is, “Probably not.” It’s unlikely the BoC’s decrease will really help those trying to break into the homeownership world, but it will offer a tiny bit of breathing room for those currently holding variable-rate mortgages. RateHub notes that the savings aren’t very impactful: “...a homeowner who put a 10% down payment on a $703,446 home with a 5-year variable rate of 5.95% amortized over 25 years (total mortgage amount of $652,727) has a monthly mortgage payment of $4,157. With today’s 25-basis point rate decrease and resulting rate of 5.7%, their monthly payment will fall to $4,061. This means that the homeowner will pay $96 less per month or $1,152 less per year on their mortgage payments.” Pretty underwhelming if you ask us, but we’ll take positive news where we can find it these days, especially when rates have been on the rise continually since March 2022—any relief is welcome.
So what could the drop mean for home buyers, homeowners, and renters? Is now a good time to buy your first home? Is it a good time to sell? What impact will the rate cut this year have on rent costs in the GTA?
Let’s break it down.
IS NOW A GOOD TIME TO BUY?
The decision to rent or buy is never a simple one, given all the individual variables at play. Buying property is rarely a losing decision, especially with the cost of housing continually on the rise in Toronto and the GTA. It may be a good time to refocus on future homeownership plans as the economy gains strength and to keep your eyes on the prize in the future, because the downward trend in interest rates could have a positive effect on housing costs and availability in the coming months. Developers are still struggling with the increases in material costs, so new builds aren’t likely to be in their immediate plans, but there are whispers of a busier resale market over the summer months, so keeping an eye on the market is a smart idea.
IS NOW THE TIME TO SELL?
If you’re a homeowner who has been planning to downsize, this may be a good time to consider selling, as new buyers may be enticed by the slight reduction in borrowing costs. It’s a great time to reach out to one of our knowledgeable agents to get a full picture of the Toronto and GTA housing market. Again, there is no clear-cut answer as Canadians are feeling trepidation from the lasting financial impacts of the pandemic and consistent rise in interest rates, while wages have not increased on par.
WHAT DOES THE BANK OF CANADA’S RATE DECREASE MEAN FOR RENTERS?
Unfortunately, not a heck of a lot. The lowered interest rate will alleviate a little pressure from landlords, so the drive to continually raise rents may ease up a bit over the next year. If new buyers are enticed to enter the homeownership world, it could open the rental market a little, too.
WILL THE BANK OF CANADA DECREASE RATES AGAIN?
“We believe that the path forward for the BoC is going to be slow. It has acknowledged that the economy doesn't need such high interest rates any longer. At the same time, it will proceed cautiously... It also doesn't want to reignite the housing market, where prospective buyers have been waiting for greater interest rate certainty. We expect the BoC is on a cut-pause-cut path, with the next cut likely occurring in September,” says James Orlando, TD Bank’s CFO, Director & Senior Economist.
Toronto Regional Real Estate Board President Jennifer Pearce predicts, “As borrowing costs decrease over the next 18 months, more buyers are expected to enter the market, including many first-time buyers. This will open up much-needed space in a relatively tight rental market.”
Experts are predicting measurable market impact to be felt in the beginning of 2025 at the earliest. So, while the BoC's rate cut might not be a game-changer, it's a welcome breath of fresh air and a hopeful predictor of brighter days ahead for many.
Whether you're buying, selling, or renting, keep your eyes on the market trends—and maybe cross your fingers for the BoC to cut rates a few more times down the road.
Remember, we’re always here to answer your questions, and make house hunting happy!