What are the latest interest rate cut
On October 25, 2024, the Bank of Canada cut interest rates for the fourth time in a row, lowering the Overnight Lending Rate by 0.5% to 3.75%. This means the rate has dropped a total of 1.25% since it reached 5% from July 2023 to June 5, 2024.
How much will variable mortgage rate-holders feel interest rate cut |
The central bank cited a significant decline in inflation as the main reason for this larger-than-usual cut, with Canada’s Consumer Price Index (CPI) falling to 1.6% in September, well below the Bank of Canada’s 2% target. Weak GDP growth and five consecutive quarters of declining GDP per capita supported this decision.
For Canadians with variable-rate mortgages or home equity lines of credit, this news is a welcome relief, as their borrowing costs will decrease further, with prime rates expected to fall to 5.95%. This could lower their monthly payments or allow more of those payments to go toward the principal.
While fixed mortgage rates aren’t directly affected by Bank of Canada rate cuts, lenders may start to lower their fixed-rate offerings since five-year bond yields have already dropped to 2.9% in response to the cut.
Prime-based savings products, like high-interest savings accounts and GICs, will offer lower returns after this cut. Savers and passive investors should consider locking in current rates before they decrease further.
Despite this cumulative 125-basis-point reduction, it’s still uncertain how much these cuts will impact the housing market. Many potential homebuyers are still waiting on the sidelines for further reductions in borrowing costs, especially with another 50-basis-point cut expected in December 2024.
Mortgage Market Canada Bank rate of interest
The summer was relatively quiet for the Canadian housing market, as buyers were hesitant to make moves until rates dropped. With the Bank of Canada implementing a third consecutive policy rate cut on September 4, 2024 (following cuts on June 4 and July 24), and more cuts anticipated, there could be a rebound in home sales in the near future.
In September rate cut, variable mortgage rates dropped almost immediately. With another rate cut widely anticipated in October, there is further downward pressure on rates.
Bond yields have dropped following the Bank’s rate cut in September and various economic signals from Canada and other countries. As a result, some lenders have lowered their fixed mortgage rates.
That said, when we look at the bigger picture, both fixed and variable mortgage rates are still relatively high. If you’re shopping for a mortgage rate in Canada, here are some key economic factors to keep in mind.
Real Estate Market on Canadian Housing Market
The Canadian housing market picked up steam in September, with 36,733 homes sold—up 6.8% from the same time last year and 1.9% from August, based on recent data from the Canadian Real Estate Association (CREA). This up comes after the Bank of Canada made three quarter-point rate cuts, lowering the national borrowing rate to 4.20%, which has encouraged more buyers to return to the market.
The national average home price increased by 2.1% year-over-year to $669,530, and it rise 1.5% compared to August. The MLS Home Price Index, which reflects the most typical home prices, also saw a slight monthly bump of 0.2%. This price growth is largely due to stronger buyer interest in markets and a 4.9% rise in new listings from August, giving buyers more choices.
CREA Senior Economist noted that some buyers may be waiting for additional rate cuts: “With rates now expected to drop faster than previously thought, it’s possible some buyers may hold off for now. This could push a bigger rebound to 2025, at the expense of the last few months of this year.
Canadian Housing rate of Interest
On October 15, 2024, Statistics Canada reported a dip in September’s Consumer Price Index (CPI) to 1.6%, down from August’s 2%. This drop, largely due to a significant 10.7% decrease in gasoline prices, came in below forecasts of 1.8% and marks the smallest inflation increase since early 2021.
Mortgage interest costs, a key inflation driver, saw a slowdown for the 13th straight month, with growth easing to 16.7% in September from 18.8% in August. This trend reflects the effects of prior rate cuts, and with additional cuts potentially on the horizon, borrowing costs for homeowners could see further declines.
Now that inflation is comfortably below the Bank of Canada’s 2% target, attention is shifting to the Bank’s October 23 announcement. There’s growing speculation that a larger rate cut—possibly as much as 50 basis points—could be on the table, which would bring the overnight lending rate down to 3.75% and offer more relief for mortgage holders and borrowers.
Also read: Canadian CPI Drops to 1.6% in September, Boosting Chances of Half-Point Rate Cut
Canadian Mortgage Reform Update
On September 16, 2024, the Canadian federal government announced major changes to mortgage qualification rules aimed at first-time homebuyers and those purchasing new homes. Starting December 15, 2024:
- 30-Year Amortizations: All first-time homebuyers can now access 30-year amortizations, even without an insured mortgage. These extended amortization options will also apply to any new construction purchases.
- Higher Insured Mortgage Limits: The maximum purchase price for an insured mortgage (with less than a 20% down payment) will rise from $1 million to $1.5 million.
These are among the most significant mortgage reforms since 2012 and are expected to improve affordability and market access for first-time buyers in Canada.
Learn more about these new mortgage rule changes.
October 2024 Canada Mortgage Affordability Update
Home affordability in Canada has improved recently as mortgage rates continue to decline, based on August data, shows that 12 of 13 major Canadian markets became more affordable, thanks to the Bank of Canada’s summer rate cuts. The average five-year fixed mortgage rate dropped to 5.16% in August, down from 5.29% in July, easing financial pressure for many homebuyers.
Toronto Leads in Canadian Housing Affordability Gains ?
For the second consecutive month, Toronto topped the nation in affordability improvements, with the income required to buy a home dropping by $4,850. Home prices in Toronto decreased by $15,100, reflecting slower sales. Victoria and Vancouver also saw affordability improvements, with home prices falling by $5,900 and $1,800, respectively.
However, not all Canadian markets followed suit. St. John’s was the only major city where affordability slightly worsened, as rising home prices led to a small increase in the income required to purchase a home.
Outlook for 2024: More Rate Cuts and New Mortgage Rules Could Boost Affordability
Housing affordability may continue to improve as the Bank of Canada is expected to implement more rate cuts through the rest of 2024 and into the new year. These rate cuts, along with newly introduced mortgage rule changes—such as higher insured mortgage purchase price caps and extended amortization options—could attract more buyers to the market.
Read more: Dropping Mortgage Rates Improved Home Affordability in August
What are the Best 5-Year Fixed Mortgage Rates: Quick Facts*
- 5-Year Fixed Mortgages are Popular: 79% of all mortgage requests made from January to December 2023 were for 5-year fixed-rate mortgages.
- Fixed Rate Preference in 2024: The 2024 CMHC Mortgage Consumer Survey reports that 68% of all mortgages contracted this year were fixed-rate mortgages.
- How 5-Year Fixed Rates Work: These rates are determined by 5-year government bond yields, offering borrowers a stable rate over a 5-year period.
Is a 5-Year Fixed-Rate Mortgage Right for You?
A 5-year fixed-rate mortgage could be ideal if you prefer stability and want to avoid the potential stress of rate increases with a variable mortgage. But before choosing this option, consider your personal situation and future plans—such as moving, changing jobs, or other life changes—as these may impact your ability or desire to stay in the home you’re purchasing.
(FFM)Full-Feature Mortgages vs. Restricted Mortgages(RM)
In today’s high-rate environment, finding the best mortgage rate is top of mind for many homebuyers. But while the lowest advertised rate may look appealing, it often comes with restrictions. These low rates are often tied to restricted mortgages, which can limit your flexibility and cost you more in the long run. By comparison, a full-feature mortgage might have a slightly higher rate, but it offers a range of features that can save you money and provide greater flexibility. Here’s a closer look.
Key Features of a Full-Feature Mortgage
- Pre-Payment Options:**
A flexible lender can offer pre-payment options that allow you to pay off your loan faster, saving thousands in interest. Look for two main pre-payment options:
- Monthly Pre-Payments: Some lenders allow you to increase your monthly payments by a certain percentage—sometimes up to 100%. This flexibility could enable you to pay off your mortgage in half the time if you’re able to make double payments.
- Lump Sum Pre-Payments: Many full-feature mortgages allow for one or more lump sum payments each year, sometimes up to 25% of the loan principal, helping reduce your balance faster.
2. Mortgage Portability:
If you need to sell your home before your mortgage term ends, many full-feature mortgages offer the option to “port” your mortgage. This means you can transfer your existing mortgage, including its rates and terms, to a new property, avoiding costly penalties. However, not all mortgages are portable, and some come with specific conditions, so it’s important to clarify with your lender.
3. Lump Sum Pre-Payment Privileges:
In addition to monthly pre-payment options, full-feature mortgages often allow multiple lump sum payments each year to reduce the principal balance. Most lenders cap this amount—typically up to 20% of the principal in a single year.
4. Payment Flexibility:
A full-feature mortgage may allow you to increase the amount of your regular payments without penalties, giving you more control over how quickly you pay down your balance.
These features make full-feature mortgages a convenient and flexible option for homebuyers. To learn more about the best mortgage for your needs, speaking with a mortgage broker can provide you with expert advice tailored to your situation—all at no cost.
Pros and Cons of a 5-Year Fixed Mortgage
Choosing a 5-year fixed mortgage rate has its advantages and disadvantages. Here’s a breakdown of both:
Pros of a 5-Year Fixed Mortgage:
1. Risk Protection
For those who prefer stability, a fixed-rate mortgage offers the security of a locked-in rate and consistent payments throughout the term. This “set it and forget it” approach shields borrowers from fluctuating bond yields, making budgeting easier and providing peace of mind. Although fixed rates climbed after 2021 due to factors like high inflation and global economic uncertainty, the 5-year fixed mortgage remains a popular option for those wanting stable payments.
2. Competitive Rates
The 5-year term is the most popular mortgage choice in Canada, often encouraged by lenders. Its popularity and competitive demand mean lenders frequently offer competitive rates for this term. For many buyers, the 5-year term strikes a good balance between rate security and term length.
Cons of a 5-Year Fixed Mortgage:
1. Higher Rates
Lenders generally charge a premium for the stability of a fixed rate, which can lead to higher costs over time. According to research from York University Professor Moshe Milevsky, over 90% of Canadians with a variable mortgage rate paid less in interest than those with a fixed rate. So, while fixed rates offer security, they might cost more over the long term.
2. Breakage Penalties
While a 5-year fixed mortgage offers stability, it can come with costly penalties if you need to break the mortgage early due to a move, job loss, illness, or other major life event. Breaking a fixed-rate mortgage usually involves a penalty of the greater of either the Interest Rate Differential (IRD) or three months’ interest. The IRD can sometimes be steep, making a fixed-rate mortgage costly to break. In contrast, a variable-rate mortgage penalty is typically limited to three months’ interest, which is often lower.
Check Today’s Best Mortgage Rates
Compare current mortgage rates from the Big 5 Banks and top Canadian lenders. Answer a few quick questions to see the lowest rates available to you.
Best Rate Today: 3.99% Fixed in Canada
Historical 5-Year Fixed Mortgage Rates in Canada
Reviewing past mortgage rates can help you understand which terms have attracted lower rates historically and provide context for today’s market.
| Year | 5-Year Fixed | 5-Year Variable | 1-Year Fixed | 3-Year Variable | Prime Rate |
|---|---|---|---|---|---|
| 2020 | 1.39% | 0.99% | 1.64% | 2.35% | 2.45% |
| 2021 | 1.39% | 0.85% | 1.54% | 0.99% | 2.45% |
| 2022 | 1.39% | 0.85% | 1.99% | 0.99% | 2.45% |
| 2023 | 4.29% | 5.30% | 5.68% | 5.35% | 6.45% |
By understanding the pros and cons of a 5-year fixed mortgage, you can make an informed decision about whether this stable, yet potentially more costly, option aligns with your financial goals.
Why 5-Year Fixed Mortgage Rates Are So Popular
The 5-year mortgage term is the top choice for Canadians, sitting right in the middle of available terms (which range from 1 to 10 years). This balance makes it an ideal choice for those looking for a risk-neutral option. Major lenders often promote 5-year terms, which contributes to their popularity. According to data, about 80% of mortgages in Canada have terms of five years or less.
Fixed rates are the clear preference among Canadians. In 2023, nearly 95% of mortgage rate inquiries on Ratehub.ca were for fixed-rate mortgages. The 2024 CMHC Mortgage Consumer Survey reports that 69% of all mortgages in 2024 were for fixed rates. The table below shows the popularity of fixed-rate mortgages in 2024 among different types of mortgage holders:
| Type of Buyer | Fixed Rate Preference |
|---|---|
| First-time Home Buyers | 71% |
| Repeat Buyers | 75% |
| Renews | 71% |
| Refinancers | 60% |
What Drives Changes in 5-Year Fixed Mortgage Rates?
The rates for 5-year fixed mortgages closely track 5-year Canada Bond Yields, with an added spread. Several economic factors, such as unemployment, exports, and inflation, influence these bond yields.
When Canada Bond Yields rise, the cost of capital increases, making it more expensive for lenders to fund mortgages. To maintain profits, lenders usually raise mortgage rates in response. When economic conditions are favorable, bond yields and mortgage rates tend to drop.
Lenders also set the spread between bond yields and mortgage rates based on their market share goals, competition, marketing strategy, and overall credit conditions. These factors help explain the ups and downs in 5-year fixed mortgage rates and why they remain a popular choice among Canadians.