Bank of Canada cuts by a further 25 basis points
The Bank of Canada, at the January 29th meeting, lowered rates by another 25 basis points, bringing the overnight rate down to 3 percent. In my mind, there’s little doubt that this cut is in direct response to the certainty of tariffs and other punitive measures coming from the Trump administration. While we did have a surprisingly good December for job creation a huge percentage of our trade flows south of the border, making our economy vulnerable to disruption. The Bank of Canada is happy with our current inflation numbers but mentions excess supply as another factor in deciding to cut rates once more. An excerpt from the press release below:
With inflation around 2% and the economy in excess supply, Governing Council decided to reduce the policy rate a further 25 basis points to 3%. The cumulative reduction in the policy rate since last June is substantial. Lower interest rates are boosting household spending and, in the outlook published today, the economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.
The lowest available January 2025 rates are:
1-year fixed insured 4.79%
2-year fixed insured 4.29%
3-year fixed insured 4.09%
4-year fixed insured 4.19%
5-year fixed insured 3.99%
5-year variable insured 4.15%
Is the mortgage stress test still a thing in 2025? 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.
