BANK OF CANADA RATE UPDATE

On June 5th, The Bank of Canada lowered its key interest rate by a quarter of a percentage point to 4.75 per cent. This is the first rate cut since March 2020.

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 are generally quick to increase their prime rate in tandem with Bank of Canada hikes. However, they’ve been less consistent when rates are on the way down. When the central bank last lowered its rate four years ago, banks followed suit within a day.

Once banks move their prime rate down, it will have an immediate effect on borrowers with variable-rate mortgages, just as they’ve felt the brunt of rising rates over the past few years.

For new borrowers planning on arranging a fixed-rate mortgage, a decrease of a quarter percentage point in interest rates will also translate to monthly savings on their mortgage payments.

For instance, a person with a $500,000 mortgage, a 25-year amortization period and an interest rate of 5 percent would save around $72 a month if their rate dropped to 4.75 percent.

This seemingly small adjustment translates into a substantial saving of around $4,320 over a 5-year term!

Lines of credit are also usually tied to bank prime rates, so borrowers should start to see some savings on that front as well.

The next scheduled date for announcing the overnight rate target is July 24, 2024.