📉Rate Update: Another Rate Cut – Score! The Bank of Canada just slashed its key interest rate by 0.25% in January, bringing it down to 3.00%. That’s the sixth cut this year, knocking a total of 2% off the peak of 5%. In other words, money is (kind of) getting cheaper! The rate now sits in the "neutral zone"—basically, the Goldilocks range between 2.25% and 3.25%, where the economy isn’t too hot or too cold.
How Does This Affect You? (AKA, Why Should You Care?)
Variable-Rate Mortgages: If you have a variable mortgage, congrats! Your payments should shrink a little.
Fixed-Rate Mortgages: These don’t exactly follow the Bank of Canada like a loyal puppy, but 5-year fixed mortgage rates have already dropped over 1% since November 2023. More cuts could be coming!
Where Are Variable Rates Headed Next? Some experts say rates will chill at 3.00%, while others predict another 0.50% drop before year’s end. Either way, mortgage holders might want to keep their party hats handy.
Inflation: Under Control (Mostly) Remember when everything felt ridiculously expensive? Inflation hit a wild 8% in mid-2021, but it’s now down to a much calmer 2.0%. Core inflation (the steadier version) sits at 2.6%—still a little spicy, but within the Bank of Canada’s target range.
Enter: The Trump Factor (Because Of Course )Just as things were settling down, former U.S. President Donald Trump decided to shake things up again. He’s been talking about slapping a 25% tariff on Canadian imports and even joked about Canada becoming the 51st state (uhh, no thanks?).
These comments have made businesses and investors nervous, leading to some immediate effects:
Businesses are hitting pause on big investments because nobody likes uncertainty.
Canada’s 5-year bond yield dipped to 2.55% (its lowest since 2022) before bouncing back slightly. Lower bond yield means lower FIXED rates!
Some lenders have already cut mortgage rates by 0.20-0.30%, and rate expert Ron Butler of Toronto's Butler Mortgage thinks most fixed mortgage rates could start with a "3" very soon.
Are we heading for a recession? If these tariffs actually happen, Canada’s economy could take a serious hit.
RBC Economics says unemployment could jump from 6.7% to around 9.7%. Ouch.
The Bank of Canada estimates GDP growth could take a 2.4% hit in year one and a 1.5% hit in year two.
Bad economy also means GOOD RATES...but job loss. Do we love a bad economy? No, but we love good rates.
What Does This Mean for Interest Rates? If things start looking quackery, the Bank of Canada is ready to cut rates again. BMO predicts a quarter-point cut at every meeting until October, while National Bank is even talking about an "emergency" 50-bps cut between meetings.
If that happens, rates could hit 2% by spring—good news if you’re borrowing but not-so-great if you’re trying to grow your savings.
Final Thoughts Mortgage rates are dropping (yay!), but Trump’s tariff talk is making things messy (boo!). If you’re thinking about buying or refinancing, now’s a good time to chat with a mortgage pro and lock in a decent rate before things change again.
Stay tuned—this rollercoaster isn’t over yet!
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