Bank of Canada Cuts Interest Rates Again

The BoC’s decision to cut its benchmark rate by 25 basis points to 2.75% reflects ongoing efforts to boost the Canadian economy. With this reduction, the Prime rate has dropped to 4.95%, directly affecting variable-rate mortgages and home equity lines of credit (HELOCs). Here’s why the Bank made this move:

🔹 Ongoing economic uncertainty: Concerns over a potential trade dispute with the U.S. are creating volatility in financial markets, and the BoC is responding proactively.

🔹 Lower borrowing costs: The cut is expected to increase housing market activity, as lower mortgage rates make homeownership more affordable.

🔹 Inflation concerns remain: Despite lower rates, the BoC is keeping a close eye on inflation risks, ensuring that rate cuts do not lead to excessive borrowing or economic overheating.

Looking ahead, the next interest rate announcement is scheduled for April 16, 2025. Many economists expect further cuts, but much depends on the evolving trade situation with the U.S.

Are Interest Rates About to Drop Even More?

With seven consecutive rate cuts, many homeowners and buyers are wondering: Could we see even lower rates this year? The answer depends on several key factors:

🔹 Trade Tensions with the U.S.: The U.S. has implemented tariffs on Canadian steel and aluminum, while delaying broader tariffs for now. If a full-scale trade war unfolds, the BoC may need to cut rates further to cushion the economic impact.

🔹 Market Expectations: Some economists predict the BoC could cut rates two or three more times in 2025, potentially bringing the benchmark rate down to 2.25% if economic conditions worsen.

🔹 Fixed Mortgage Rates Could Follow: Bond yields, which heavily influence fixed mortgage rates, have declined in recent weeks. This suggests fixed mortgage rates could gradually decrease in the coming months.

If you’re thinking about buying or refinancing, now is the time to assess your mortgage options before further rate cuts shift the market again.

Mortgage Stress Test Rules Could Change

Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), is considering replacing the mortgage stress test with new lending restrictions. The goal is to shift the focus from borrowers to banks, tightening rules on high-risk lending.

🔹 Current Stress Test: Requires uninsured borrowers to qualify at 5.25% or their contract rate plus 2%, whichever is higher.

🔹 Proposed Changes: Instead of stress-testing individual borrowers, banks would be limited in how much they can lend to highly indebted borrowers (those with mortgage debt exceeding 450% of their annual income).

🔹 Why the Change? OSFI has found that many borrowers are still taking on massive debt loads despite the stress test. A new approach could help prevent risky lending without blocking affordability for responsible borrowers.

A final decision on these changes is expected later this year. We’ll keep you updated on what this means for homebuyers and those looking to refinance.

Bank of Canada Cuts Interest Rates Again

The BoC’s decision to cut rates by 25 basis points to start 2025 reflects its ongoing efforts to stabilize the Canadian economy. Lower interest rates are expected to fuel consumer spending, encourage borrowing, and stimulate the housing market. Here’s what’s driving the move:

🔹 Inflation is under control: The Consumer Price Index (CPI) is hovering close to the BoC’s 2% target, though temporary factors like the suspension of GST/HST on some goods are affecting price levels.

🔹 The housing market is picking up: Lower borrowing costs are making homeownership more affordable, leading to increased activity in the housing sector.

🔹 Trade uncertainty remains a risk: The Canadian dollar has weakened against the U.S. dollar, and potential U.S. trade tariffs could impact Canada’s economic outlook. If a full-scale trade dispute unfolds, the BoC may need to take additional action.

Looking ahead, the BoC projects moderate GDP growth of 1.8% in both 2025 and 2026. The next interest rate decision is scheduled for March 12, 2025.

Fixed or Variable: Which Mortgage is Right for You?

With rates in motion, many borrowers are wondering: Should I go with a fixed or variable mortgage? The answer depends on your financial goals and risk tolerance.

✔ Fixed Rates: Stability and predictability are the biggest advantages. You lock in your rate for the term of your mortgage, ensuring that your payments remain the same—even if rates fluctuate. This option is ideal for those who prioritize financial certainty.

✔ Variable Rates: These tend to be lower initially and move in response to the BoC’s rate changes. If rates continue to decline, you could benefit from lower payments. However, if economic conditions change and rates increase, your payments could rise as well.

Financial experts caution against making mortgage decisions purely based on short-term rate trends. Many Canadians who chose variable mortgages during the ultra-low rate environment of 2020-2021 were caught off guard when rates spiked in 2022-2023. Instead, experts recommend asking yourself:

🔹 How comfortable are you with payment fluctuations? If you prefer peace of mind, a fixed rate may be best.

🔹 Are you financially flexible? If you have room in your budget to absorb potential rate increases, a variable rate could be a good fit.

🔹 What’s your long-term plan? If you plan to sell or refinance in the near future, a variable rate may offer more flexibility.

While lower rates are expected in 2025, uncertainty remains. That’s why it’s important to choose a mortgage that aligns with your financial situation rather than basing your decision on market predictions.

Are Interest Rates About to Drop Even More?

With the BoC already cutting rates, many are wondering: Could we see even bigger drops in 2025? The answer largely depends on the evolving trade situation with the U.S.

🔹 Tariff Threats on Pause – But Not Gone: The U.S. has temporarily delayed major trade tariffs on Canadian imports, but there’s still a 30-day window where the situation could escalate. If tariffs take effect, they could significantly slow Canada’s economic growth.

🔹 Bond Yields Are Dropping: Five-year Government of Canada bond yields, which heavily influence fixed mortgage rates, have declined sharply in recent weeks. This suggests that fixed rates may continue to decrease.

🔹 BoC Could Be Forced to Cut Further: If trade tensions escalate or economic growth weakens, the central bank may implement more aggressive rate cuts to counteract the effects. Some economists suggest that an emergency rate cut could be on the table if conditions worsen.

Despite lower borrowing costs, many homebuyers remain cautious due to economic uncertainty. A slower housing market recovery could keep home prices stable in some areas, while others may see more competition as affordability improves.

If you're planning to buy or refinance, it’s important to stay informed and work with a mortgage professional to assess your best options.