Uncertainty around the Bank of Canada’s rate announcement was reflected in the spring market as many buyers waited on the sidelines for the Bank of Canada to wave the green flag and begin reducing its benchmark rate.

The Bank of Canada’s June 5th rate cut may have only been 25 basis points (.25%), but the psychological effect for many who have been patiently waiting for the first rate reduction in four years was no doubt huge. A 25 basis point reduction decreases monthly mortgage payments immediately for some variable-rate mortgage holders, while also increasing buying power for new purchasers. Someone with a $600,000 mortgage and a 6% interest rate (25-year amortization) will save approximately $88 per month if the rate is 5.75%.


Approximately 56% of Canadians who have been active in the housing market said they were forced to postpone their property search since the Bank of Canada began raising its benchmark interest rate in March 2022 (Royal LePage).

Among those waiting on the sidelines, just over half said they would resume their search if interest rates went down, including 1/10 who indicated a 25 basis point drop would be enough for them to jump back in. The central bank’s benchmark rate directly impacts housing costs, affecting both the size of the mortgage Canadians can qualify for and the amount they pay per month. If borrowing costs continue to decline over the coming months, more buyers are expected to enter the housing market, including many first- time home buyers due to the relief in the mandatory qualification.


Now that the Bank has lowered its benchmark rate, borrowers with variable-rate mortgages or HELOCs will feel immediate relief, just as they have felt the brunt of rising rates. However, it is important to note that not all variable-rate mortgage holders will see their monthly payments change. Those with a fixed-payment variable mortgage will instead see the interest portion of their payment decline, while the amount going towards principal repayment will increase. Fixed- rate mortgages will not see their payments change until it comes time to renew. Fixed mortgage rates are determined by the Government of Canada’s 5-year bond yield. Although fixed rates are influenced by the Bank of Canada’s rate decisions, many other factors are taken into consideration including inflation, employment rates, and overall economic growth.

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The question now turns to further rate cuts – specifically, how fast and how far?

The Bank of Canada governor Tiff Macklem said it’s “reasonable to expect further cuts, but the Bank is making its interest rate decisions one at a time.” Members of the governing council noted that easing is expected to be gradual, matching the projected steady decline in inflation until it reaches the neutral target between 2-3%.

Although inflation continues to trend lower, there is discussion about the risks to the future path of inflation and economic growth. One possibility is that cuts to the benchmark rate could lead to an overheated housing market, given the pent-up demand. An overheated housing market could drive up prices, potentially reigniting inflationary pressures and further complicating the Bank’s efforts to maintain stable economic growth.


TD is predicting the central bank will cut rates two more times by the end of the year to bring the benchmark to 4.25%, while CIBC and RBC are predicting three more cuts which would bring the benchmark rate to 4%. A full percentage point off a $600,000 mortgage would translate into about $349 per month in savings. However, if the economy avoids a downturn, labour markets remain resilient, wage growth doesn’t slow, or if house prices rebound too quickly, the central bank’s gradual path could be at risk. If any of these scenarios occur, the Bank may postpone easing and maintain the benchmark rate for an extended period.


Buyers who are waiting for their ideal mortgage rate might be missing opportunities to get a better deal in today’s slower market. Once interest rates decrease further, more buyers are likely going to get back into the market. That increases competition for available listings and could make bidding wars more common.

Canadians should weigh both the mortgage rate they can qualify for and their purchase price, but not necessarily equally. Homebuyers only get one chance to settle the purchase price of their property but will renew their mortgage multiple times over the lifespan of the loan.


The Bank of Canada’s next rate announcement is scheduled for July 24th.

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