10/24/2024
What does the Bank of Canada’s 50-bps rate cut means for variable-rate mortgage holders?
Your interest costs have dropped - again.
What does this mean?
It means for an example, that the rate cut works out to roughly $30 less in monthly payments per $100,000 of mortgage debt based on a 25-year amortization.
So for a typical $400,000 mortgage, that translates to $120 per month and If you add up the previous cuts this year, your monthly savings are most likely more than $120 since the Bank of Canada started lowering its policy rate from its peak of 5%.
And with an adjustable-rate mortgage, both your interest rate and your monthly payment change with fluctuations in the prime rate.
This means you'll see an immediate reduction in your next mortgage payment following yesterday’s rate cut.
For those who hold a fixed-payment variable-rate mortgages, your monthly payment will stay the same even when interest rates fluctuate but the portion of your payment that goes towards interest versus principal will change.
So with the recent rate cut, more of your payment will go towards reducing your mortgage principal, meaning you'll pay off your mortgage slightly faster.
But what about fixed-rate mortgages?
For those with just a fixed-rate mortgages, yesterday’s cut won't
directly impact your current payments, since your rate is locked in for the term.
