The Bank of Canada (BoC) has lowered its overnight lending rate by another 0.25%, bringing it down to 2.75%. This translates to a Bank Prime rate of 4.95%, affecting borrowers with variable-rate mortgages and lines of credit. If you have a variable mortgage, you typically secure a discount off Prime. For example, with a Prime -0.70% rate, your new mortgage rate would be 4.25% (4.95% – 0.70%).
Economic Outlook: Why Interest Rates Are Dropping
The latest rate cut reflects ongoing economic uncertainty. In financial markets, bad economic news is often good news for interest rates—when the economy struggles, central banks cut rates to stimulate borrowing and spending. However, this is happening against a backdrop of disorder and disruption in global trade systems, leading to nervous investors and consumers. That said, it’s important to note that we are in a rapidly changing economic environment. The information in this update is based on what we know today, but conditions could shift quickly with new data, policy decisions, or unexpected global events.
At the beginning of the year, analysts expected Canada’s economy to experience a soft landing. However, ongoing tariffs and trade disputes have created a much rougher path, and economists now predict a hard landing—meaning a recession. If tariffs remain in place, negative GDP growth is expected in Q2 2025.
Here’s a look at some key Canadian economic indicators:
- Unemployment rate: 6.6%
- Job growth in February: Flat
- Wage inflation: Declining
Trade wars create a unique economic environment—they can cause both recession and inflation at the same time. However, leading economists Dr. Sherry Cooper, believes that the economic slowdown will reduce consumer spending enough to prevent inflation from rising significantly.
Many experts predict the overnight lending rate could drop to 2.25% by spring 2025, which would bring the Bank Prime rate down to 4.45%. If you have a variable mortgage with a discount of Prime -0.70%, your rate could decrease to 3.75%.
Fixed vs. Variable Rates: What You Need to Know
While variable rates are directly influenced by the Bank of Canada’s policy changes, fixed rates are driven by the bond market. Specifically, fixed mortgage rates are tied to Canada’s 5-year bond yield, which follows the 10-year U.S. Treasury yield.
Despite weakening Canadian economic data, U.S. economic resilience has kept bond yields higher, limiting how much fixed mortgage rates have dropped. Currently, fixed rates are:
- Low 4% range for insured mortgages
- Mid – High 4% range for most other mortgage types
However, as trade tensions persist, we expect fixed rates to gradually decline.
Spring 2025 Housing Market: What to Expect
On a national scale, the spring housing market is shaping up to be strong. A surge in new listings in January has shifted the market closer to a buyer’s market, creating more opportunities for homebuyers.
Mortgage Tips for Spring 2025
Consider a Rate Hold for Variable Mortgages – If you’re thinking about a variable-rate mortgage, locking in your discount off Prime is crucial. Lenders adjust their Prime discounts frequently; today’s Prime -0.70% could easily change to Prime -0.50% tomorrow.
Bad Economic News = Lower Interest Rates – The 10-year U.S. Treasury yield has been trending down, which should help bring Canadian fixed mortgage rates lower.
Thinking About Refinancing? – If you have equity in your home but are carrying consumer debt, now may be a great time to explore refinancing. Lower interest rates can help improve your cash flow and reduce your borrowing costs.
Mortgage Renewal Coming Up? Let’s Plan Early! – If your mortgage is up for renewal in 2025, don’t wait until the last minute. We can strategize to secure the best rate and terms for your situation.
Reviewing Your 2023-2024 Mortgage – If I helped you with a mortgage in late 2023 or 2024, I’ll be reviewing your file to see if refinancing or adjusting your mortgage makes financial sense. I’ll weigh penalties against potential savings to help you make the best decision.
If I didn’t originally arrange your mortgage but you’d like me to review it for potential savings, feel free to reach out anytime!
Need Mortgage Advice? Let’s Talk!
The mortgage landscape is shifting, and staying ahead of the changes can save you money. Whether you’re looking to buy, refinance, or renew, I’m here to help you navigate the best options for your financial future.
Contact me today to discuss your mortgage strategy!
Hi, I’m Jill, your mortgage pro. I am here to make the world of mortgages less confusing so you can feel confident in your financial decisions. Through my blog, I aim to provide you with the knowledge and guidance you need to make informed decisions. Your financial peace of mind is my top priority.
