The Bank of Canada is expected to announce another interest rate cut on December 11, 2024, which is good news for anyone considering entering the housing market.
Canadian households and businesses are increasingly feeling the pressure of a slower economy and rising living costs, also known as the “me-cession.” Canada’s GDP growth is falling short of the Bank of Canada’s expectations. Despite inflation running slightly higher than anticipated, it remains within the target range of 2% set by Bank Governor Tiff Macklem.
While uncertainty looms due to potential tariff threats from the United States, which could also affect the value of the Canadian dollar, experts are still forecasting a possible rate cut this month. There is room for another rate cut, which could provide much-needed relief to buyers.
“From a homebuyer’s perspective, this will make it more affordable to enter the market, as lenders’ prime rates—and by extension, variable mortgage rates—are likely to drop following the Bank of Canada’s decision,” experts note.
Additionally, new mortgage rules are set to come into effect in December. Starting December 15, the insured mortgage cap will increase to $1.5 million, up from $1 million. Buyers purchasing new homes with an insured mortgage can also apply for a 30-year amortization period.
These changes, combined with the expected interest rate cuts, could spark a busy January in the housing market, once the holiday season is over. It’s recommended that anyone shopping for a new mortgage or renewing their current mortgage term should consult with a mortgage professional to plan their strategy as the market heats up.
Potential savings for homeowners can also be significant if the Bank of Canada cuts interest rates by 25 or 50 basis points. According to the Canadian Real Estate Association (CREA), the average home price in Canada was $696,166 in October 2024.
For example, if a homeowner purchased a $696,166 home with a 10% down payment and took out a 25-year mortgage with a 5-year variable rate of 4.85%, their monthly mortgage payment would be $3,702. If the Bank of Canada cuts rates by 25 basis points, the monthly payment would decrease to $3,611, saving the homeowner $1,092 annually. With a 50 basis point cut, the payment would fall to $3,522, saving $2,160 annually.
In Ontario, where the average home price is higher ($878,620), the impact of rate cuts would be more significant for buyers. While rate cuts will offer savings to homeowners, interest rates on savings and investment products will likely continue to decline in 2025, meaning Canadians may see lower returns on these types of products.
Looking ahead, the first Bank of Canada interest rate announcement of 2025 is set for January 25, which could provide more insight into the future direction of the housing market and mortgage rates.
FAQs
- What does the Bank of Canada’s interest rate cut mean for homebuyers?
An interest rate cut will lower variable mortgage rates, making it more affordable for homebuyers to enter the market. - How will the Bank of Canada’s rate cuts affect mortgage payments?
A rate cut will reduce monthly mortgage payments. For example, a 0.25% rate cut could save homeowners $1,092 annually. - What are the new mortgage rules starting December 15?
Starting December 15, the insured mortgage cap will increase to $1.5 million, and first-time buyers can apply for a 30-year amortization period on new homes. - How will the real estate market change in 2025?
Experts expect more rate cuts in 2025, which could continue to support affordability in the housing market, although it may also reduce the returns on savings and investment products. - When is the next Bank of Canada interest rate announcement?
The next interest rate announcement from the Bank of Canada will be on January 25, 2025, which may further influence mortgage rates and the housing market.
