Are Mortgage Rates Dropping?

Whether you’re currently paying off an existing mortgage or you’re a first-time buyer about to climb the property ladder, understanding mortgage rates is a crucial element of your financial planning. After all, the higher the rates the more you will pay, affecting your ability to meet your monthly payments and possibly the security of your home.

However, the good news is that recent trends show mortgage rates are slowly dropping. But what does this mean for you and your finances, and what could the future hold as far as your mortgage is concerned? Here we explore those questions to help you prepare for whatever the financial landscape has to offer now, and in the future.

What is the current state of mortgage rates?

The Bank of Canada, which influences lender mortgage rates through its benchmark interest rate, has recently reduced its lending rate, with further cuts expected through the end of 2024 and into 2025. This downward trend has contributed to a stabilization and even decrease in both fixed and variable mortgage rates. As the Bank continues to make adjustments in line with the changing economic landscape, borrowers may benefit from these reduced rates.

For example, in June 2022, inflation hit 8.1%, the highest in decades. This greatly affected mortgage rates, raising them for anyone with a variable-rate mortgage and discouraging first-time buyers from entering the property market due to high mortgage rates in general.

However, recent reports suggest that average mortgage rates have stabilized, and some are starting to decrease, bringing relief to both existing and prospective homeowners. Ultimately, this means you can expect to pay less each month, at least in the short term.

What influences mortgage rates? 

Mortgage rates are influenced by several key factors, including:

• Bank of Canada’s Monetary Policy — The Bank of Canada’s interest rate decisions are pivotal in shaping mortgage rates. After raising the key interest rate to combat inflation, the central bank has recently begun to lower rates, giving some breathing room to borrowers.
• Inflation Trends — Inflation has been a major concern, pushing the Bank of Canada to increase rates to manage price levels. However, recent data indicates that inflation is moderating. If this trend continues, the BOC may be able to maintain lower rates or even further consider cuts, further influencing mortgage rates.

• Economic Conditions — Economic performance and growth expectations play a crucial role in determining mortgage rates. A slowing economy or signs of a recession can prompt central banks to lower interest rates to stimulate growth. Currently, Canada’s economy is showing signs of moderation, impacting mortgage rate decisions.
• Global Economic Factors — Global economic conditions, including geopolitical events and international interest rate trends, also affect Canadian mortgage rates. For example, shifts in U.S. monetary policy can have ripple effects across the Canadian financial system.

What does this mean for you and your mortgage? 

On paper, for Canadian borrowers and homeowners, lower interest rates could equate to a decrease in mortgage rates. However, depending on your current circumstances, this can mean different things:

• Refinancing Opportunities — If you are currently a homeowner with an existing mortgage, you may want to consider refinancing if your current rate is significantly higher than the new, lower rates available. Refinancing can lead to lower monthly payments and reduced overall interest costs. Borrowers should check with their current lender and balance any savings expected from lower rates with any early break fee.

• Home Buying Decisions — If you are a prospective homebuyer, you might find the current rates more manageable compared to the peaks of previous years. Lower mortgage rates can make homeownership more affordable, potentially encouraging more people to enter the housing market.

• Variable vs. Fixed Rates — Again, if you are a prospective homeowner or renewing your mortgage soon, now is the time to weigh the pros and cons of variable versus fixed mortgage rates. While fixed rates offer stability with consistent payments, variable rates can be more appealing if the trend toward lower rates continues. However, they come with the risk of future rate flux.
• Long-Term Planning — As with any large investment, it’s highly important that you consider your long-term financial plans. Even if rates are dropping now, you should be prepared for potential future increases. Having a financial cushion and planning for various rate scenarios can help you manage risks effectively.

Bottom Line

While mortgage rates in Canada have been slowly dropping as of late 2024, the landscape remains dynamic. The recent stabilization in rates provides a more favourable environment for both current homeowners and prospective buyers. It’s crucial for you to stay informed about economic indicators, central bank policies and global trends that could impact future mortgage rates. By understanding these factors and planning accordingly, you can make informed decisions that give you the best chance to reduce monthly payments and ensure financial stability.

Source(s):

https://www.bankofcanada.ca/rates/interest-rates/

https://www.cbc.ca/news/canada/bank-of-canada-interest-rates-cost-of-living-1.7314422

https://www.rbcroyalbank.com/en-ca/my-money-matters/money-academy/economics-101/understanding-interest-rates/bank-of-canada-announces-another-interest-rate-reduction-offering-more-positive-signs-for-homebuyers-and-owners/

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