The Bank of Canada makes it fourth announcement tomorrow... what does that mean for you?

Prior to March 2020, the Bank of Canada was not a household name. As Realtors, we educated ourselves on any updates from their announcements but we did not see the dramatics effects on the market that we see in this current market.

Today, even if you are not actively searching for a house or in a variable rate mortgage, conversations about the Bank of Canada (BoC) announcements are quite commonplace. Since the BoC aggressively increased rates starting in Spring 2022, it has had a significant affect on not only the housing market, but consumers attitudes and emotions towards the market. In the weeks before an announcement, we now see Buyers waiting to see what happens. Its even affected how some Sellers manoeuvring the market, some are waiting to list or to do price adjustments until after the announcements. 

So, tomorrow as the  Bank of Canada makes its fourth announcement of the year lots of regular people are waiting in anticipation. Since September 2023 the rates have held steady at 5%. Some economists are predicting a reduction of .25% while others are expecting that the Bank will hold its rate and wait until July for the first cut. One of the BoC preferred measures of core inflation, median inflation, came in at 2.7% and was within target range for the first time in 2.5 years (BDC). Although, the BoC prefers inflation to sit around the 2% a major contributor to core inflation is housing costs. According to the BDC,  if mortgage interest costs are excluded, inflation has held steady at 2% in 2024. Although. seeing the rising inflation rate in the US, the BoC may continue to exercise caution and revisit a cut in July. 

So what does this mean for YOU?

Are you looking for a home? What would an interest cut mean to you? What happens if the rates stay the same?

Some buyers have been waiting for the Bank of Canada announcement to happen on June 5th before they make a move. However, regardless of what happens at  the announcement, whether the rates stay where they are or are cut .25%, it will not make a significant impact on a Buyers purchasing power. 

A quick rule would be that a one percent change (either an increase or decrease) will affect your purchasing power by 10%. So if the Bank of Canada decreases their rate by .25%, as some economists are predicting, your purchasing power would increase by 2.5%. Not a significant shift. The average sale price for Freehold Residential Homes in Niagara for 2024  (year to date) is $711,660, so the increase in purchasing power with a reduction  of a quarter basis point would be $17,791. 

Regardless if the rates remain the same tomorrow, the BoC has indicated that rates cuts are on the horizon and some lenders like TD have indicated that fixed rate mortgages could come down in price, even before a rate cute happens. 

Are you in a variable mortgage?

If you’re like me, in a variable mortgage, you’ve been praying to all the mortgage Gods for a cut for some time now. If the rates stay the same tomorrow, then there will be no immediate impact for you.  If the BoC reduces  the overnight rate, those with a variable rate mortgage will see more of their payments going towards the principal amount on their mortgage and less towards interest. Depending on the type of variable mortgage you have, you may see your payments decrease as well.  My variable rate payments changes depending on the rate - so I am always paying something towards the principle. 

Is your mortgage up for renewal in 2024 or early 2025?

If you have to renew your mortgage in 2024 or 2025, you may feel stressed and uncertain about what that looks like for you. According to Statistics Canada data, the average fixed mortgage rate on insured mortgages with terms of five years or more was about 3.14% in 2019, today rates are between 4.79% and 5.2% so a difference of 1.65% to 2.06%.  Unlike  variable mortgage rates which will only dip when the BoC lowers its overnight rate fixed mortgages are determined by bond market activity, which can be unpredictable.

If you’re concerned, we recommend that you talk to a trusted mortgage advisor. We work with some incredible knowledgeable brokers, who are available to provide advice and help you look for the most competitive rate and terms. It’s a good idea to start the discussion within the four to six month period before the of your mortgage term. Depending on the scenario, you may be able to port or blend your mortgage which could help create a more favourable outcome for you. Your lender may also be able to do a rate hold for up to 120 days. So hypothetically, if your mortgage is due in September, and the rates are lower in  July than September you would still qualify for those lower rates. If the rates are lower at time of renewal compared to when you did your rate hold, you would renew at the lower rate.  

At the end of the day, remember we are your trusted advisor well before and well after the sold sign is off the front yard. So if you have any questions or need help to be connected to a mortgage professional we’re always here to help. 

- Your Niagara Sold by Kate Team