Ratehub predicts lower variable mortgage rates following Bank of Canada rate cut

Experts suggest that homeowners with variable mortgage rates will see benefits in lower monthly payments following the Bank of Canada’s recent reduction of its key policy rate.

The major six banks announced on Wednesday that they would lower their prime rates by a quarter-percent, from 5.45 percent to 5.2 percent, effective the next day. This adjustment came after the Bank of Canada decreased its key interest rate target for the sixth time since June.

The central bank also reduced its rate by a quarter-percent to three percent, citing stable inflation around its two percent target and a growing economy.

Mortgage expert Penelope Graham from Ratehub.ca stated that this decision is expected to result in lower variable mortgage rates across most Canadian lenders.

Calculations by Ratehub show that a homeowner who put a 10 percent down payment on an average-priced home in Canada, which was $676,640 as of December 2024, could save around $87 per month with a five-year variable rate.

Fixed mortgage rates are also set to decrease slightly as bond yields dropped to the 2.8 percent range post the central bank’s announcement. However, Graham mentioned that concerns over potential inflation among investors may prevent significant discounts in the near future.

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“Homeowners with variable mortgage rates will either see lower monthly payments with an adjustable-rate mortgage or a reduction in interest costs if on a fixed payment plan,” Graham explained.

Based on Ratehub’s calculations, a person with a variable rate mortgage at 4.45 percent amortized over 25 years making $3,458 monthly payments would see a drop to 4.2 percent and $3,371 in monthly payments. This translates to saving $1,044 annually in mortgage payments.

For every quarter-percent decrease, homeowners with variable-rate mortgages can anticipate around $15 less in monthly payments per $100,000 of their mortgage, said Victor Tran, a mortgage and real estate specialist at Ratesdotca.

Tran highlighted that this rate cut comes during a period of economic uncertainty and potential growth in national home sales.

“Each consecutive rate reduction is positive news for homeowners and those renewing mortgages,” Tran mentioned.

“While the housing market is showing signs of recovery, the rush expected with the initial rate cuts has not materialized. Buyers now have the flexibility to find the right home with offers conditional on financing and inspections.”

Since the peak in borrowing costs in August 2023, homeowners with a 10 percent down payment on an average-priced home with a five-year variable rate would have seen a $685 decrease in their monthly mortgage payment, according to Ratehub’s analysis.

At the peak, the best five-year variable rate was 5.95 percent. Amortized over 25 years, monthly mortgage costs for a $650,140 home would have been $3,842, a figure that has now reduced to $3,157 with a variable rate of 3.95 percent.

Phil Soper, president and CEO of Royal LePage, stated that the Bank of Canada’s recent move will enhance buying capacity for homebuyers.

“This latest decrease comes just ahead of the spring housing market when demand typically rises, which should stimulate buying and selling in the coming weeks,” Soper noted.

“However, the looming threat of significant tariffs by the U.S. government creates uncertainty for both the central bank and consumers.”