For the first time in over four years, the Bank of Canada has cut its primary interest rate, becoming the first G7 Nation to do so this year. But what will that mean for homeowners and borrowers in the Foothills?
On Wednesday morning, Canada's central bank dropped the key interest rate to 4.75 per cent from five per cent, where it had been since July 2023.
The last time that interest rate was cut was in March 2020. Since then, the rate has steadily increased to as high as five per cent.
The news from Wednesday is good for many mortgage brokers including Rachel Brown in High River.
“I think it's a blip in the right direction,” she said. “I think the first step is always the biggest step for the government to make. That's given a lot of people a lot of confidence to move forward knowing that the government is trying to make changes.”
She added that depending on the size of the mortgage, variable-rate holders will only see a small difference in their monthly payments, roughly $12 to $13 less per $100,000 owed.
Hours after the Bank of Canada’s decision, Some of Canada’s major banks announced they were lowering their prime rates from 7.20 per cent to 6.95 per cent. That prime rate affects those with variable-rate mortgages and secured lines of credit.
Davelle Morrison, a mortgage broker with Bosley Real Estate out of Toronto said the decline in the prime rate is good news as, for years, borrowers have been paying more in interest than their principal amounts.
She added it is bringing a sense of hope to those who have been pleading for financial relief.
“I think people view it as every little bit helps so that by the time we get to the fall and there's another rate announcement, hopefully, there's another decline and then hopefully by the end of the year, we're down about 75 basis points overall.”
The next interest rate decision from the Bank of Canada is expected in July where economists are anticipating another small cut to 4.50 per cent.
Morrison said the anticipation for these upcoming rate decisions reminds her of people playing the odds in Las Vegas and compared it to the classic game show, Press Your Luck.
“Everybody's like, ‘Ok, come on, big bucks, big bucks, no whammies, we want the rates to come down,” she laughed.
Both Brown and Morrison expect that rates will continue to drop, albeit slowly over the coming months and years.
“Nobody has a crystal ball but based on what I have seen in the past, we have seen rates come down and sort of stable out once they're at the lower amount,” said Brown. “So that's sort of what I think most people are hoping for to happen."
“Canadians have really wanted this kind of relief,” added Morrison. “Their cost of living is high, their housing is high, their groceries are high. So, I think this is just that Canadians will breathe a sigh of relief and know that next month they get to breathe another sigh of relief.”
While some people are celebrating the rate decision, the same can’t be said for the federal Conservatives who believe the rate cut would do little to help struggling Canadians.
“The NDP-Liberal government cannot declare victory as a result of this tiny rate cut because millions of Canadians continue to suffer as a result of their policies," The Conservative Party said in a news release.
"This rate cut is not a mark of success for Justin Trudeau but rather a reminder that millions of Canadians will be forced to renew their mortgages at much higher rates thanks to his inflationary policies."
Canada's annual inflation rate has steadily declined in recent months, reaching 2.7 per cent in April.
The Canadian economy has also weakened under the weight of high interest rates. Economic growth in the first quarter came in lower than forecasters expected, and the unemployment rate has steadily risen, reaching 6.1 per cent in April.
-With files from The Canadian Press
Sat, Jun 29, 9:00 AM
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