The Bank of Canada has just announced another interest rate drop, bringing the overnight rate down to 3%. If you have a variable-rate mortgage, this could mean lower monthly payments! But what’s next? Will rates keep falling, or is this the last cut we’ll see for a while?
In this Mortgage Minute, Josh Tagg from the Mortgages for Less team at The Independent Mortgage Company breaks down what this latest rate cut means for Canadian homeowners and buyers. Watch the video below to get the full details! 🎥👇
📺 Watch the Video:
What’s Next for Interest Rates?
With inflation stabilizing in Canada, the Bank of Canada has been able to make multiple rate cuts since mid-2024. However, economic factors, including U.S. inflation, trade policies, and global economic shifts, could still impact future decisions.
For a deeper dive, check out the transcript highlights below!
The Bank of Canada has once again lowered interest rates, announcing a 0.25% rate cut on January 29, 2025. This brings the overnight rate down to 3%, a significant drop from last year’s high of 5%.
If you have a variable-rate mortgage, your monthly payment will decrease by approximately $14 per $100,000 of mortgage debt. For a $400,000 mortgage, that means a $60 monthly reduction. This rate cut is possible because inflation in Canada has stabilized. After the high inflation of the COVID years, inflation dropped to 2% in mid-2024, allowing the Bank of Canada to begin cutting rates in June.
We’ve seen several larger-than-usual rate cuts since then, but we’re likely nearing the end of this trend. Forecasts suggest we may see three more quarter-percent rate cuts in 2025, but economic uncertainty remains. Inflation in Canada is influenced by global factors, particularly the United States, where inflation has been rising since September. U.S. inflation was 2.4% in September 2024 but has climbed close to 3%.
With a new U.S. president, we may see more inflationary pressure. If the U.S. imposes broad-based tariffs, import costs will rise, leading to higher prices and inflation. If Canada responds with tariffs, inflation here could increase, potentially forcing the Bank of Canada to reverse course and raise rates again.
Other U.S. policies, such as mass deportations of low-wage workers in industries like agriculture, hospitality, and restaurants, could create labour shortages, pushing wages and prices higher. Increased government deficit spending and policies like exempting tips and social security benefits from taxes will put more money into circulation, increasing inflation risks.
Since September 2024, U.S. mortgage rates dropped to around 6% but have now climbed back to 7%, reflecting expectations of persistent inflation. The U.S. Federal Reserve is set to announce its rate decision today, with no changes expected. Their current rate is 4.5%, 1.5% higher than Canada’s, and expectations for a U.S. rate cut in 2025 are fading.
The Bank of Canada will monitor these developments closely. The next rate announcement is March 12, 2025, after any potential U.S. tariffs take effect. We’ll see how these factors influence the Bank of Canada’s next move.
