Bank of Canada Cuts Rate - What it Means for You

The Bank of Canada today reduced its target for the overnight rate by 25 basis points to 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. This is the second consecutive cut from the central bank as it cut its rate by 25 basis points in September. 

This move reflects ongoing softening in the Canadian economy, including slower business activity and easing inflation. It is intended to help support households during this transition. According to TD Deputy Chief Economist Derek Burleton, this lower rate environment is likely to persist for quite some time as the economy adjusts to its new trade normal

Canada’s economy contracted by 1.6% in the second quarter, reflecting a drop in exports and weak business investment amid heightened uncertainty. Meanwhile, household spending grew at a healthy pace. US trade actions and related uncertainty are having severe effects on targeted sectors including autos, steel, aluminum, and lumber. As a result, GDP growth is expected to be weak in the second half of the year. Growth will get some support from rising consumer and government spending and residential investment, and then pick up gradually as exports and business investment begin to recover.

Canada’s labour market remains soft. Employment gains in September followed two months of sizeable losses. Job losses continue to build in trade-sensitive sectors, and hiring has been weak across the economy. The unemployment rate remained at 7.1% in September, and wage growth has slowed. Slower population growth means fewer new jobs are needed to keep the employment rate steady.

For Canadians with variable-rate mortgages, rate cuts can mean more of their mortgage payments go towards the principal and less towards interest. Homeowners with a variable-rate mortgage and variable payments could see their total payment shrink.

For Canadians with fixed-rate mortgages, a central bank rate cut does not immediately affect them since fixed-rate mortgages are commonly based on five-year bond yields.

While market dynamics are evolving, this rate drop could create meaningful opportunities for homeowners depending on your current mortgage situation.

If you’re renewing soon…

A lower rate environment could improve your affordability and cash flow. It’s a great time to explore lenders and terms to avoid overpaying at renewal.

 

If you’re considering refinancing…

You may be able to:

• Lower your monthly payments
• Consolidate high-interest debt
• Access home equity for renovations or other financial goals

This change could make a refinance more cost-effective and worth reviewing sooner.

If you’re planning a purchase…

More favourable borrowing conditions may help expand affordability and boost confidence as you search for the right home.

The economic conditions are shifting, and even small rate changes can have a big impact on the life of a mortgage. Combined with softening prices and increased supply, this will give buyers more leverage, allowing for conditional offers and more time to make decisions.