Breaking news, Bank of Canada cuts by 50 basis points
The Bank of Canada, at the Oct 23rd policy meeting decided to lower rates by a full half a percent due to a reduction in inflation and a clearly sluggish Canadian economy. Our over night rate now sits at 3.75%. Some of the Bank’s commentary is laid out below.
In Canada, the economy grew at around 2% in the first half of the year and we expect growth of 1¾% in the second half. Consumption has continued to grow but is declining on a per person basis. Overall, the economy continues to be in excess supply.
GDP growth is forecast to strengthen gradually over the projection horizon, supported by lower interest rates. This forecast largely reflects the net effect of a gradual pick up in consumer spending per person and slower population growth. Residential investment growth is also projected to rise as strong demand for housing lifts sales and spending on renovations. Business investment is expected to strengthen as demand picks up, and exports should remain strong, supported by robust demand from the United States.
With inflation now back around the 2% target, Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range. If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further.
The lowest available Oct 2024 rates are:
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1-year fixed insured 5.74%
2-year fixed insured 4.99%
3-year fixed insured 4.09%
4-year fixed insured 4.20%
5-year fixed insured 3.94%
5-year variable insured 4.75%
Is the mortgage stress test still a thing in 2024? Yes it is, and with the higher rates we’ve seen, it’s even harder to qualify for a mortgage. The rules require you to qualify at either 2% above the rate your lender is offering you or 5.25%, whichever is higher.
Being forced to qualify at the higher stress test rate causes the principal portion of your monthly mortgage payment to shrink, lowering the maximum amount you’ll be allowed to borrow for your mortgage. But the rate you’ll actually pay once you buy is the rate you are offered by your lender. Your monthly payments will be calculated from this lower rate, not the stress test rate. As a result your monthly mortgage bill will be smaller too.
The stress test has been quite unpopular so the federal government has rolled out several new changes to make it easier to buy a home. They are now offering a first time buyer’s credit of $5000, and an increase in withdrawals from your RRSP to $35,000.
In addition existing borrowers are no longer required to re-qualify at the stress test rate when they renew or refinance their mortgages. This will allow borrowers some flexibility if they want to choose a different lender as they are no longer under the pressure of qualifying at an additional two percentage points.
If you’re looking for mortgage info or help please reach out.
