Following the substantial rate increasing madness we experienced in 2022 and 2023, the 0.25% rate cut from the Bank of Canada on June 6thth was a huge relief. Particularly to those in variable rate mortgages… giving them the much-needed break they have been waiting for. 

Now we get to enjoy the fun part!  A downward trend in mortgage rates. But how many more cuts are coming, and how quickly will they arrive? 

 

Current Rate Forecasts from the Big Six Banks 

Of all the big banks, five of them are expecting the Bank of Canada to cut their rate by 0.75% by the end of 2024. The sixth is BMO, forecasting a 0.50% cut. 

In 2025, they are predicting additional cuts of 0.75% to 1.50%, depending on the bank. 

That’s an additional 1.25% to 2.50% in cuts over the next 18 months. Here’s how the forecasts look from each bank broken down by quarter: 

2024 2025 TOTAL 
Q3 Q4 Q1 Q2 Q3 Q4
CIBC -0.25% -0.50% -0.50% -0.50% -0.25% -0.50% -2.50%
RBC -0.50% -0.25% -0.25% -0.50% -0.25% N/C -1.75% 
Scotia  -0.50% -0.25% -0.25% -0.25% -0.25% N/C -1.50%
TD -0.25% -0.25% -0.50% -0.50% -0.25% -0.25% -2.00%
BMO -0.25% -0.25% -0.25% -0.25% N/C -0.25% -1.25%
National Bank -0.25% -0.50% -0.50% -0.50% -0.25% N/C -2.00% 

 

Even if the most aggressive forecasts become reality, they are still a far cry from the 4.75% in hikes we saw from March 2022 to July 2023. While it’s a safe bet to say that rates will not be falling anywhere close to their pandemic driven lows, the exact amount in which we can expect the rates to drop is still unknown. 

Will we continue to see rates fall into 2026? 

The expectation is that they will, but no one can say this for sure. It’s just too far away to make this kind of prediction. As I always say, time will tell and anything can happen. 

 

BoC Rate Cuts and Fixed Mortgage Rates 

There are many that believe that fixed rates move in line with the Bank of Canada rate. For those who read my blogs regularly, I may sound like a broken record, but a large number of the mortgage seeking population believe that they move in synch.

Fixed mortgage rates are not directly impacted by the Bank of Canada overnight rate and are primarily set by Government of Canada bond yields. If the bond market anticipates a rate cut, this expectation is already factored into the yields. Hence, a rate cut might not necessarily lead to a decrease in fixed mortgage rates.

There are even times when yields could increase at the same time the BoC is cutting their rate… or vice versa. 

When yields move, pressure is placed on mortgage rates in the same direction.  However, this doesn’t mean that fixed mortgage rates are always coming along for the ride. At times, the bond market can experience large swings, without any fixed rate movement at all. I cover this in detail in my blog on Fixed Mortgage Rate Pricing Explained. 

As of today, we’ve seen fixed mortgage rates drop by 0.05% to 0.15%, depending on the lender and product. Fixed mortgage rates are expected to continue to fall, but not at the same pace as the Bank of Canada cuts.  In other words, we can expect the BoC rate to fall faster than fixed mortgage rates. 

The next rate announcement from the Bank of Canada is expected on July 24th where it’s possible that we could see them come through with the second cut in the series. We’ll find out soon enough. 

 

Conclusion 

We’ve been waiting for the Bank of Canada to start cutting their rate for a long time, and that time has finally come. But the financial world can be unpredictable and what we think will happen does not always become reality. Eventually, the economists will be wrong in our favour, which would lead to deeper than expected cuts. We just don’t know when.