In its statement, the Bank’s Governing Council said economic growth has been weaker than expected, while recent federal policy announcements on immigration levels and stimulus spending are likely to have mixed effects on inflation.
The Bank said the decision to cut by 50 basis points (bps) was made “with inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected.”
It added that future monetary policy decisions will be made “one decision at a time.”
How will borrowers be affected?
If you have a variable-rate mortgage, you’re in for another drop in your interest costs.
Today’s rate cut will likely reduce your monthly mortgage payment by around $28 for every $100,000 of debt, assuming a 25-year amortization. For a $400,000 mortgage, that’s a savings of approximately $112 a month.
It’s also important to understand how this affects two types of variable-rate mortgages: fixed-payment variable-rate and adjustable-rate.
Adjustable-rate mortgages: With an adjustable-rate mortgage, both your interest rate and monthly payment adjust whenever the prime rate changes. This means you’ll notice a decrease in your next mortgage payment following today’s rate cut. For example, with a $500,000 mortgage, you could save around $140 per month as the prime rate drops.
Fixed-payment variable-rate mortgages: With this type of mortgage, your monthly payment remains the same even when interest rates change. What will change, however, is how your payment is split between interest and principal. Today’s rate cut means more of your payment will go toward paying down the principal, allowing you to pay off your mortgage a bit faster.
HELOCs and personal lines of credit: Today’s rate cut isn’t just beneficial for mortgage holders—it also means savings for those with a Home Equity Line of Credit (HELOC) or personal line of credit.
These types of credit are linked to the prime rate, which typically moves in sync with the Bank of Canada’s rate changes. As the prime rate drops, the interest charges on your line of credit will decrease as well, freeing up more money for you each month.
Fixed-rate mortgages: For homeowners with fixed-rate mortgages, today’s rate cut won’t affect your current payments, as your rate is locked in for the duration of your term.
What’s next for the Bank of Canada?
The next rate decision from the Bank is set for January 29, 2025. While more rate cuts are expected in 2025, it’s still too soon to say whether the Bank of Canada will keep cutting in January or take a step back to assess how the economy is responding to past rate cuts.
However, following the latest ‘oversized’ rate reduction, expectations are for the pace of future rate cuts to slow.
“In the short space of six months, the Bank has driven the overnight rate from a highly restrictive 5% level right down to the top end of their estimate of neutral rates at 3.25%,” noted BMO Chief Economist Douglas Porter. “Now, the BoC has directly signalled that the pace of cuts will slow, perhaps dramatically.”‘
In his post-announcement press briefing, BoC Governor Tiff Macklem said the Bank’s policy rate is now “substantially” lower and that its effects will gradually be working their way through the economy.
“With the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected,” he said.
Here’s a look at the latest policy rate forecasts from the Big 6 banks:
| Current Policy Rate: | Policy Rate: Q4 ’24 | Policy Rate: Q4 ’25 | Policy Rate: Q4 ’26 | 5-Year Bond Yield: Q4 ’24 | 5-Year Bond Yield: Q4 ‘25 | 5-Year Bond Yield: Q4 ‘26 | |
|---|---|---|---|---|---|---|---|
 | 3.75% | 3.50% | 2.50% | 3.05% | 2.60% | ||
 | 3.75% | 3.25% (-25bps) | 2.25% | 2.25% | NA | NA | NA |
 | 3.75% | 3.25% | 2.00% | 2.90% | 2.30% | ||
 | 3.75% | 3.25% | 2.00% | 2.95% | 2.45% | ||
 | 3.75% | 3.50% | 3.00% | 3.00% | 3.75% | ||
 | 3.75% | 3.50% | 2.25% | 2.25% | 3.05% | 2.75% | 2.75% |
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Last modified: December 12, 2024
