The Bank of Canada has just announced another 50-basis point (0.50%) rate cut, bringing its key policy rate down to 3.75%, the lowest we’ve seen in two years. This is the fourth rate cut this year, which continues to lower borrowing costs for those with variable-rate mortgages. But even if you’re a first-time homebuyer with a fixed-rate mortgage, this rate cut, combined with upcoming CMHC changes, could have a significant impact on the housing market—and your homebuying plans.

How the Rate Cut Affects Variable-Rate Mortgage Holders

If you currently have a variable-rate mortgage, today’s rate cut means your monthly payments are about to decrease. For every $100,000 of mortgage debt, you’ll save approximately $30 per month, or about $120 for a typical $400,000 mortgage. Add this to the savings from previous cuts, and your monthly payments may have already dropped by more than $300 since the Bank of Canada started lowering rates.

Here’s how it breaks down:

• Adjustable-Rate Mortgages: Your interest rate and monthly payment will both decrease with each rate cut. For a $500,000 mortgage, you could save about $150 per month with this latest reduction.

• Fixed-Payment Variable-Rate Mortgages: Your monthly payment stays the same, but with each cut, more of your payment will go toward paying off the principal, meaning you’ll pay down your mortgage faster.

What About Fixed-Rate Mortgages?

Most first-time homebuyers tend to choose fixed-rate mortgages, so today’s rate cut may not directly impact your payments. But here’s why you should still be paying attention: fixed rates are tied to Government of Canada bond yields, which have been trending downward. While fixed rates won’t change immediately with a rate cut, bond yields influence the long-term cost of borrowing, and many experts predict that fixed mortgage rates will likely continue to fall.

This means that if you’re a first-time buyer looking to lock in a rate soon, the market is likely to offer you lower fixed rates in the near future. But you shouldn’t wait too long.

Why First-Time Buyers Should Act Now

Even though fixed rates may continue to drop, two major factors could drive up home prices soon, especially for first-time homebuyers:

1. Upcoming CMHC Changes: On December 15, 2024, the Canada Mortgage and Housing Corporation (CMHC) will increase the insured mortgage cap from $1 million to $1.5 million. This means buyers in higher price ranges will have access to CMHC insurance, which lowers the required down payment and makes purchasing homes in the $1 million+ range more accessible. As more buyers enter the market in higher price ranges, it could push up demand—and prices.

2. Lower Interest Rates: As rates continue to drop, more buyers may be able to afford higher-priced homes. This increase in purchasing power will likely boost demand for homes, putting upward pressure on home prices.

For first-time buyers, this combination of CMHC changes and lower interest rates means acting now could save you money before prices begin to rise.

What’s Next for Mortgage Rates?

Most economists predict that the Bank of Canada will continue cutting rates into 2025. Some major banks expect the BoC to cut rates by an additional 175 basis points (1.75%) by the end of 2025, which could bring the policy rate down to 2.00% and reduce the prime lending rate to around 4.20% at major lenders.

For first-time homebuyers, this means that the window to lock in lower rates before home prices rise is narrowing. Even if you’re opting for a fixed-rate mortgage, it’s crucial to take advantage of the current lower rates before the market adjusts.

What Should You Do Next?

Whether you’re already in the market or thinking about making a move soon, this is the time to review your mortgage options and strategize. Here’s how you can benefit:

• First-Time Buyers: If you’re in the process of shopping for a home, now’s the time to act. With CMHC changes coming in December and rates continuing to fall, waiting could result in higher home prices. Lock in a lower rate now while demand is still manageable.

• Variable-Rate Borrowers: If you’re currently in a variable-rate mortgage, enjoy the savings, but keep an eye on the market. More rate cuts could bring additional savings, but it’s always good to review whether switching to a fixed rate might make sense for you in the long run.

Key Takeaways:

• Variable-rate borrowers will see immediate payment reductions, saving $30 per $100,000 of mortgage debt.

• Fixed-rate borrowers, especially first-time homebuyers, should consider acting soon to lock in lower rates before home prices start to rise.

• Upcoming CMHC changes could push up home prices as more buyers gain access to homes in the $1 million to $1.5 million range with lower down payments.

• Economists expect further rate cuts from the Bank of Canada into 2025, offering more opportunities to save on mortgage rates.

Next Steps: Get a Custom Mortgage Review

If you’re a first-time homebuyer or current borrower looking to make the most of these rate cuts, now is the time to act. Reach out today for a custom mortgage review or to discuss how you can benefit from these changes before the market heats up.

Your Friend in the Mortgage Business,
Adam Walker
Walker Mortgages
226-567-4274 ext. 1
[email protected]

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