Borrowers are gradually regaining their smiles. The Bank of Canada lowered its key rate by another half a percentage point on Wednesday, to 3.25%. The result: savings of a few hundred dollars per year for holders of an adjustable rate mortgage loan.
Generally speaking, this new reduction in the key rate represents “a saving of approximately $30 per $100,000 of mortgage loan,” immediately summarizes John Fucale, senior vice-president of broker relations at Multi-Prêts. .
So, for example, for a mortgage loan of $400,000 amortized over a period of 25 years and for which the interest rate would go from 5% to 4.5%, the monthly payments would go from approximately $2,326 to $2,214. That’s a savings of almost $112 per month, or $1,344 per year.
“This new reduction in the key rate will enormously help people who have a mortgage loan with a variable rate. It also restarts the conversation for new buyers,” says Mr. Fucale.
The variable rate has lost a lot of feathers in recent years due to successive increases in the key rate, but it is now becoming “attractive” again, while the gap between the variable rate and the fixed rate is narrowing, believes Fucale.
Variable rate loans are directly influenced by variations in the prime rate. Fixed-rate mortgages, on the other hand, are influenced by bond yields.
In recent months, the Bank of Canada has lowered the key rate five times in a row. Last July, it was at a high of 5%.
According to Desjardins economists, “given the upcoming wave of mortgage renewals and the deterioration of the economic outlook”, the Bank of Canada should continue to gradually lower its key rate, until reaching 2% by the start of 2026.
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