As expected, The Bank of Canada has lowered its key interest rate by a quarter of a percentage point to 4.75 per cent. This is the first cut in more than four years. Are more cuts coming?
Bank of Canada governor Tiff Macklem did say it's "reasonable" to expect further cuts, but that the bank is making its interest rate decisions one at a time.
TD is predicting the central bank will cut rates two more times by the end of the year to bring the benchmark to 4.25 per cent, while CIBC and RBC are predicting three more cuts which would bring the key rate to an even four per cent. A full percentage point off the $600,000 mortgage would translate into about $349 a month in savings.
The Bank of Canada's benchmark rate affects borrowing costs for banks, which means they're able, but not forced, to lower their own lending rates. Banks usually are very quick to move their prime rate higher with Bank of Canada hikes, but sometimes they can be slower to reduce when the rate drops.
By Wednesday afternoon though, most banks had lowered their prime rates to 6.95 per cent from 7.2 per cent, effective June 6, matching the drop from the central bank.
WHAT DOES IT MEAN FOR MY MORTGAGE?
Banks lowering their prime rates will have an immediate effect on borrowers with variable-rate mortgages, just as they've felt the brunt of rising rates.
Those with a fixed-rate mortgage will not see their payments change until it comes time to renew their loans.
Fixed-mortgage rates are determined by what happens to the bond market, which, while also affected by Bank of Canada rate decisions, is based on overall investor confidence. The market had already largely priced in the rate cut.
HOW MUCH SAVINGS ON A MORTGAGE CAN BE EXPECTED FROM THE RATE CUT?
A quarter percentage point cut doesn't translate into a major change in monthly mortgage payments. Someone buying a $300,000 home with 5% down in Winnipeg will see a $40/month drop in their mortgage payment from a 5% mortgage rate to 4.75%. This isn’t a huge amount, but every little bit helps when affording a home. We expect this to help our already strong market here in Winnipeg.
If you would like to discuss buying or selling a home in Winnipeg and surrounding areas, give our team a call at (204) 975-9349 or email us at SOLD@WinnipegHomeConnection.com. We are your Winnipeg Home and Condo Connection serving Winnipeg and surrounding areas for over 33 years.
