The Bank of Canada has just made another move, dropping the overnight rate by 0.25%—the third cut in a row. While it might not have been a nail-biting wait, it was exactly what most experts predicted. Any other outcome would have been a surprise. 

This is fantastic news for those with variable rate mortgages, as their interest rate will drop by 0.25%. In most cases, this will also mean a decrease in their mortgage payment. 

But what does this mean for those eyeing fixed mortgage rates? 

 

The Impact of the BoC Rate Cut on Fixed Rate Mortgages

There’s a common misconception that when the Bank of Canada cuts rates, fixed mortgage rates automatically follow. While that can happen, it’s not a rule. Fixed rates are more influenced by bond yields than the Bank’s rate decisions. Sometimes, fixed rates barely move, and in some rare cases, they can even rise after a rate cut. 

For example, back in March 2020, the BoC made a surprise 0.50% rate cut, yet bond yields jumped. This resulted in fixed mortgage rates  increased by 0.15% to 0.25% depending on the lender. Further increases added the following week. This is a reminder that bond yields, not the BoC’s overnight rate, drive fixed mortgage pricing. 

Today’s cut was anticipated, so we may not see an immediate drop in fixed rates. The bond market had already priced in this move. 

 

What’s Next for Fixed Mortgage Rates?

That doesn’t mean fixed rates won’t go down further—they likely will, just not at the same pace as the Bank of Canada’s rate cuts. Predicting fixed rate changes is tricky since bond yields can swing in response to economic news. For example, if inflation were to spike again, bond yields could rise, pushing fixed mortgage rates up with them—regardless of what the Bank of Canada is doing. 

At the time of writing, bond yields are down by more than 1%, about where they were at the end of July. So, while we might not see dramatic drops in fixed rates today, there’s still potential for them to come down further.

 

More Rate Cuts on the Horizon?

The Bank of Canada isn’t finished with their cuts which are expected to continue, possibly well into 2025. Stay tuned for an upcoming blog where I’ll break down the latest BoC rate forecasts from Canada’s big six banks.

 

Final Thoughts

After enduring the rapid rate hikes of 2022 and 2023, it’s a relief to see the Bank of Canada easing things down. For those with variable rate mortgages, today’s cut marks the third in a series, with more on their way. 

It feels good to be on the other side of the rate hike madness, and now, with rates heading lower, there’s a bit of breathing room. Whether you’re in a variable or fixed rate mortgage, it’s worth keeping an eye on the market and adjusting your plans accordingly. 

The next scheduled rate announcement from the Bank of Canada will be on October 23rd. You can read the September 4th rate announcement here.