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Canadian homeowners breathe easy with Bank of Canada’s rate cut

Canadian homeowners breathe easy with Bank of Canada’s rate cut

Posted on June 7, 2024   |  

Canadian homeowners get relief as the central bank cuts interest rates for the first time in 4 years, easing pressure on variable-rate mortgage holders.

Canadian households, now the most indebted in the G7, took variable-rate mortgages during the COVID-19 pandemic when rates were low but have struggled with rate hikes since 2022.

Rising rates forced many homeowners to pay only the interest on variable-rate mortgages, causing the principal to increase.

Fixed-rate mortgage holders in Canada may face payment shocks upon renewal, as Canadian mortgages typically renew every three to five years with 20 to 25-year amortization periods.

For an average home worth C$703,446, a 5-year variable rate of 5.95% over 25 years means a monthly mortgage payment of C$4,157.

The 25-basis point rate cut reduces monthly mortgage payments by C$96, saving homeowners C$1,152 annually.

Unlike in the U.S., Canadian mortgages renew more often, exposing homeowners to significant payment changes with fluctuating interest rates.



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