Bank of Canada Update – Lowered Key Interest Rate – January 29th

Clinton Wilkins joins Todd Veinotte on 95.7 News Radio to discuss the Bank of Canada lowering the key interest rate to 3%, which was expected and could benefit consumers with variable rate mortgages.

Bank of Canada Interest Rate Announcement

Todd Veinotte
All right, the Bank of Canada has lowered its key interest rate by a quarter of a percentage point to 3%. This was expected too. Joining us to talk about all of this is Clinton Wilkins, our mortgage guru. Clinton Wilkins, It’s snowy out there!

Clinton Wilkins
It certainly is snowy. It’s January, but I think the rates are heating up! That’s the new story. The market was about 95% optimistic on a 25% cut of the key overnight rate. It makes it very interesting for consumers. Now, more and more consumers are taking a variable rate anyway. Todd, I think people are becoming more educated. We’ve been talking about it for years. There certainly are some pros. But even from a pricing perspective, for someone getting a new mortgage today a variable and a fixed, the pricing is almost the same. And you know, I think a lot of economists and a lot of consumers have optimism that the rates are going to continue to go down. I think they’re going to continue to go down this year if inflation is still low. We’re keeping an eye on GDP here in Canada, not so hot right now, and we need to spur some spending. The one thing that we’re going to be watching is what happens in the US. People are tariff crazy. Now, at this point, there were some situations with other countries in the US this week, and we’ll see what happens next week and beyond with the US. I’m optimistic, though. The cost of borrowing, I think, for Canadians, being lower is great, and inflation has come lower, and it’s below where the target’s going to be. So the bank account is going to want to spur some spending here, and to do that, we need to make the rates lower. That’s one thing. And, I think there’s a lot of optimism in the marketplace. The one thing we will be watching is the bond market. And I just need to remind everyone that the fixed rates and the variable rates do not move in concert. So although today, a variable rate mortgage is cheaper than it was yesterday, fixed rates have not changed, and if anything, the bond market could go up, and the cost of borrowing for a fixed rate could increase, they’re not tied one to one. That’s something very interesting to remember, especially if you’re doing a mortgage transaction. You know, I think there’s a lot of confusion, and there’s so many nuances around mortgage lending, people don’t understand, and that’s why I think us coming on here. And, you know, giving some education is so important.

Impact of Interest Rate on Mortgage Payments

Todd Veinotte
So the quarter of a percentage point to 3% – What does that mean to somebody in their mortgage payment, in their monthly mortgage, or their bi-monthly payment?

Clinton Wilkins
It depends on what they owe and what their amortization is. It’s going to be dollars and cents. We’re not talking 1000s of dollars here, but I think any little bit helps. So if you had a home equity line of credit, your rate is going to go down right away. If you have a mortgage that has an adjustable payment with a variable, your payment is going to go down. So your amortization will stay in line and your payment will go down. If you have the type of mortgage that your payment doesn’t change when the primary changes, your amortization will get shorter. Now, some lenders will adopt the primary right away. Other lenders will wait until the first of next month to roll that out for everyone. So depending on how your lender works, you may see an impact. Straight away, great news, you know, for me, it’s the optimism of it all. I think a lot of consumers were sitting on the sidelines, maybe Todd the last, you know, 18, 24, months the rates have been high, but rates moving now in this direction. Many mortgage rates are all in. You know that four, four and a half under 5% range. We are in a rate environment now that isn’t necessarily inflationary, but it’s also not going to put any gas on the fire. We’re in more of that balanced marketplace, I think, from a rate environment, and I’m optimistic that we’re going to start seeing rates in the threes shortly. I think that’s going to happen, like a five-year fix. I think fixed rates across the board. I think we’ll eventually see them in the threes, depending on what happens with the bond market. And to be honest, Todd, we have a couple more cuts here from the Bank of Canada. We’ll see variable rates in the threes. Great news for anybody who already has a variable rate mortgage, but I think for consumers who are looking to do a new transaction, it’s worth it to look at a variable rate. The real pros are, you can always convert it into a fixed so let’s say the fixed rates continue to go down. And you know, you’re a fixed rate person, you can convert your variable into a fixed rate with no penalty. The other real upside is and I think people forget about this. If you were to break your your variable rate mortgage early, you’re going to pay a penalty of only three months of interest to get out so many Canadians exit their terms early. So certainly a big advantage my mortgage is a variable if anybody’s curious, I believe in it, and you know you need to. Understand how it works. There are so many differences between the lenders. You need to understand the product that you have.

Market Optimism and Future Projections

Todd Veinotte
Okay, so is there a psychological barrier that people often have, kind of like that under five is often a barrier, isn’t it that I’m noticing?

Clinton Wilkins
We were doing a lot of mortgages in the five and 6% so we’ve moved in the right direction. And I do think that we’re going to see more borrowers enter the market this spring than we did last spring. I think the challenge in Halifax, we still don’t have enough listings. We’re not building enough homes, and not enough homes are going up for sale. I do think that we will see more listings this year, partially because we’ve had a lot of apartments come online. And I know I always make the kind of joke of the little old lady and the little old man, they’re sitting on these prime pieces of real estate that would be great for first-time home buyers, but they didn’t have a place to live. But now, with more rental units coming online. I think we’re gonna see more listings coming up in the spring. And typically, the spring is one of the busiest real estate markets all year. You know, right now, it’s kind of a very interesting time. And, you know, we’re seeing a lot of purchases happening way, way more than a normal January. I think a little bit of that was fueled by this pent-up demand for people sitting on the fence the last year or so.

Todd Veinotte
Clinton is always great and of course, our next edition of Mortgage 101, goes next month, right?

Clinton Wilkins
Yeah, it’s just right around the corner. And we’re going to be talking about the month of love. January was “Merry Debtmas” and we talked a lot about refinance and we’re certainly talking to a lot of consumers about refinances as well.

Todd Veinotte
If people miss that, they can certainly check it out online.

Clinton Wilkins
Check it out on our website at TeamClinton.ca/radio, and you can also check it out right here, on the 95.7 News Radio website as well. All our previous shows are on there, and you can certainly listen to Todd and I. We’re also on social media so you can check us out.

Todd Veinotte
Great stuff. Clinton Wilkins, our mortgage guru, thanks for listening everybody.