interest rates written with a type writer.

Mortgage News: Bank of Canada Cuts Interest Rates in June 2024 Update

On June 5, 2024, the Bank of Canada (BoC) announced a slight but significant cut to its benchmark interest rate, reducing it by 0.25% to 4.75%. This is the very first cut since the early days of the pandemic, which can be a potential turning point in the country’s fight against inflation. Several factors contributed to the BoC’s decision to lower the interest rate.

What led to the drop in interest rate? 

Easing the inflation is the biggest contributor. The Consumer Price Index (CPI) was at 2.7% in April 2024, which means that prices are not rising as quickly as before. Additionally, core inflation, which excludes volatile items like food and energy, also decreased, showing that overall price increases are slowing down.

Another reason is the government wants to make efforts to support economic growth. It makes borrowing money easier and also encourages investments and spending. The economy also seems to stabilize, so there’s no need to have a more restrictive monetary policy. 

variable mortgage written on a yellow house cutout with a calculator on the background.

How does the drop affect mortgage rates? 

Variable mortgage borrowers are the most directly affected by the rate cut. Those with adjustable-rate mortgages or home equity lines of credit (HELOCs) will see their interest rates and monthly payments decrease in real-time. The lowest five-year variable rate in Canada could drop from 5.95% to 5.7%, potentially saving the average borrower around $96 per month on a national average home price of $703,446.

On the other hand, fixed mortgage rates won’t be affected by BoC’s update as it is influenced by bond market trends. However, the drop affected the bond market, so homeowners looking to renew their mortgage will see some relief in monthly payments then. 

Does it make the housing market more favourable for buyers? 

This is something that’s up for debate because it can go either way. On one hand, lower rates improve mortgage affordability, making it easier for buyers to qualify for loans. On the other hand, the decrease could spur increased competition in the housing market, driving up home prices. During previous rate cut periods, such as during the pandemic, the market saw a surge in home prices as mortgages were affordable. 

Should I buy a house or invest my money? 

If you’ve been waiting for interest rates to drop, this is your sign to buy a house. Don’t wait any longer because real estate prices will continue climbing as rates drop. Leo Ragusa is ready to assist you with mortgage pre-approval. Reach out to him today to get started.

If you’re an investor, this is a good time to direct some funds towards your investments. The BoC‘s decision has already positively impacted the TSX Composite Index, which rose 0.57% following the announcement. On the other hand, if you use traditional programs to save money, you might lose out on some earnings. Interest rates on high-interest savings accounts and guaranteed investment certificates (GICs) are expected to decline.