With the recent decreases in the Bank of Canada’s interest rate throughout the summer and into September, now is a great time to understand how these changes may impact your mortgage. Whether you’re a current homeowner, a first-time buyer, or thinking about refinancing or renewing, lower rates offer plenty of opportunities.

Let’s break down what these rate cuts mean for different types of mortgages.

Adjustable-Rate Mortgage Holders: Enjoy Lower Monthly Payments

If you’re on an adjustable-rate mortgage, you’ve likely already noticed a small reduction in your monthly payments due to the rate decreases.

For example, let’s say you have a mortgage balance of $750,000. At the previous rate of 6.20%, your approximate compounded monthly payment might have been around $4,924. Now, with a reduced interest rate of 5.95%, your monthly payment drops to roughly $4,809 – a savings of about $115 per month (that’s around $15 saved per $100k balance).

While this may not seem like a huge difference, those monthly savings can add up to significant financial relief over time!

Pro Tip: Use this extra cash flow to pay down your principal faster or boost your savings.

Static-Payment Variable-Rate Mortgages: More Principal, Less Interest

Borrowers with static-payment variable-rate mortgages will also benefit from the Bank of Canada’s rate cuts, though in a different way. While your monthly payment remains the same, the reduction in interest rates means that a larger portion of your payment goes toward paying off the principal of your mortgage rather than interest. This can help you pay down your loan faster and build equity more quickly.

Fixed-Rate Mortgage Holders: Future Benefits at Renewal or Refinancing

For those with a fixed-rate mortgage, you won’t see any immediate changes, as your rate stays the same regardless of Bank of Canada rate fluctuations. However, lower rates are good news when it comes time to renew. In a declining rate environment, you may be able to lock in a lower rate at renewal or when refinancing, which can increase your borrowing power.

Pro Tip: Start exploring your refinancing options early, especially if your mortgage renewal is coming up in the next year.

First-Time Home Buyers: A Golden Opportunity

If you’re a first-time homebuyer, this is an exciting time! Lower interest rates mean not only lower mortgage payments but also improved qualification options. This makes it easier to afford your first home.

Plus, with recent Government of Canada changes to mortgage rules, many of the previous barriers for first-time homebuyers have been removed, making homeownership more accessible.

What’s Next? Future Rate Cuts Expected

The Bank of Canada has two more decision dates this year in October and December. Experts anticipate further quarter-point cuts, which could bring the overnight rate down to 4.0% by the end of 2024. Looking ahead, rates may continue to decline into next year, potentially dropping to as low as 2.75% by mid-2025.

Remember: Rate Isn’t Everything

While lower rates are a win, it’s important to remember that interest rate is just one factor in your mortgage. Other key factors include:

• Type of mortgage (fixed vs. variable)

• Down payment amount

• Payment schedule and amortization

• Prepayment privileges and penalties

These factors can impact both the affordability and flexibility of your mortgage.

Have Questions? Let’s Chat!

Whether you’re considering buying, renewing, or refinancing, these rate changes could work in your favor. Every mortgage is unique, and it’s crucial to understand how these rate cuts specifically affect your situation. If you have questions or need personalized advice, reach out today for a free consultation!