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INTEREST RATES

What does the Bank of Canada’s interest rate cut mean for me?

As you’ve likely heard, on June 5th, 2024, the Bank of Canada (BoC) announced the first interest rate cut in more than four years – bringing its overnight lending rate down 0.25% to 4.75%. But what does this mean for you, and why is everyone talking about this rate change? The simplest explanation is that BoC’s overnight lending rate influences interest rates charged by financial institutions, including yours, but the degree to which this change impacts you depends on the type of investments, loans and mortgages you hold or plan to open.

How does this change impact mortgage rates and prospective homebuyers?

The BoC’s rate cut has led to most financial institutions ‘following suit’ and lowering their Prime Rate accordingly. Because of this, homeowners with mortgage types that are tied to their financial institution’s Prime Rate, such as variable-rate mortgages with fixed payments, may see more of their payment being applied to principal and less to interest. Also, homeowners with adjustable-rate mortgages (also tied to Prime) could see their payment amount decrease. Keep in mind however that fixed-rate mortgages would not be impacted by the changes until it is time to renew the mortgage term. The past few years have seen a large fluctuation in rates set by the BoC, so depending on when you began your current mortgage term, you may find that rates have gone up or down in that time.

If you are currently looking to purchase or sell a home, you may also notice that the real estate market gets a bit of a boost as a result of this interest rate drop. As housing may become more affordable for some people due to this decrease, the housing market may pick up as more Canadians are able to finally begin their homeownership journey.

How does this change affect borrowing costs, such as loans?

As with variable mortgage types, this rate cut may help you save money on interest charges on loans, lines of credit (LOC’s) and even credit cards, depending on your current arrangements with your lender. If the rate on your loan products are tied to Prime, you can expect to see a decrease in the overall interest rate you are charged.

How can I plan for the future?

It is expected that the BoC will announce further rate decreases later this year, which may continue this trend. However, even though this is good news for many, it is important not to overspend or overextend yourself even as borrowing costs decrease. Keeping a close eye on your finances, and meeting with an Advisor to go over your savings plan as you work towards your goals, is an important way to ensure you stay on top of your spending during a changing interest rate environment.

If you are planning to purchase a home (or switch or refinance your mortgage), it is a great time to set up an appointment at Tandia to go over your plan so you’ll be prepared in the event of further changes in the market. We are committed to your financial health and wellbeing – let us help you achieve your goals and navigate these changes with more confidence.

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