September 2024: Lower Interest Rates, Inflation, and What It Means for Canadian Homeowners

September 18, 2024 | Posted by: The Spooner Group

As we approach the final stretch of the year, there’s some great news for homeowners and anyone interested in the real estate market.

Recent changes in interest rates and inflation are creating new opportunities to get into the market and save money on a mortgage. Let’s break down what’s happening and how you can take advantage of these shifts in the market.

Interest Rates Are Falling

Bank of Canada Cuts Rates Again

The Bank of Canada has lowered the overnight lending rate for the third time this year, which directly impacts adjustable-rate mortgages and lines of credit.

The Bank of Canada’s decision to lower the overnight lending rate by another 0.25 basis points is aimed at stimulating economic activity by making borrowing cheaper.

We now have a decrease of 0.75 basis so far in 2024 with more coming. The impact:

How Does This Affect Mortgage Payments?

For adjustable-rate mortgages (and lines of credit), monthly payments are lowered. Here’s a general example:

For every $100,000 of mortgage balance, payments drop by approximately $12 (for every 0.25 basis point drop).

So, if you have a $500,000 mortgage balance, you’re looking at about $60 less per month in payments. After three rate cuts, that adds up to roughly $180 per month in savings!

Lower Fixed Rates, Too!

Fixed mortgage rates are also dropping, thanks to bond yield decreases.

Compared to last year, you can now secure a fixed-rate mortgage for anywhere between 0.25% and 1% lower. For a $500,000 mortgage, this translates to around $60-$240 less per month.

Great news.

Inflation is Cooling Down

Inflation Hits Target

According to the latest August Consumer Price Index (CPI), inflation has finally reached the Bank of Canada’s 2% target for the first time in over three years.

While prices remain higher than they were a few years ago, the key takeaway is that the economy is stabilizing.

The Importance of Inflation Reaching Target

Interestingly, 0.8% of that inflation figure is tied to mortgage interest costs, meaning a significant portion of inflation is driven by housing costs. With the lowering of interest rates, we can expect this number to continue easing.

Additionally, home prices in Canada have also dropped—by about 20% on average from the 2022 peak—especially in provinces like Ontario and British Columbia. This creates an opportunity for buyers to enter the market at a more affordable price point.

While 2% inflation still means prices are increasing overall, the rate of increase is more stable, which allows you to make moves with more predictability.

What Do These Rate & Inflation Changes Mean for You?

The answer depends on the situation you find yourself in. If you’ve been waiting for better opportunities, your patience has paid off.

Lower interest rates and a more stable economy mean you can secure a better deal on a mortgage or get into the real estate market at a lower price than just a few months ago (and especially compared to two years ago).

Refinance or Buy?

Whether you’re thinking of refinancing to get a better rate, do renovations, use your equity to consolidate debt or get money for a down payment on another property, or are thinking of entering the housing market for the first time:

The current conditions provide excellent opportunities. Lower rates mean better mortgage qualifying options, and with home prices having softened, now could be the ideal time to make your move.

Final Thoughts

Making the Move You’ve Been Waiting For

The recent changes in interest rates and inflation offer a chance to re-evaluate your mortgage plan or explore new real estate opportunities. If you’ve been considering making a move, refinancing, or purchasing a new home, now is the time to take action.

For those with questions or wanting to discuss how these market changes can benefit your situation:

Always reach out to a mortgage professional. Professionals like mortgage brokers and agents will help you navigate your options and find ways to save more on your mortgage or real estate plans.

More rate cuts are on the horizon, so it’s a great time to set yourself up to take advantage of the changes that have already happened and the future ones as well.

Stay tuned for more updates as we continue tracking the Canadian housing market. If you have any questions or need tailored advice, don’t hesitate to contact our team—we’re here to guide you every step of the way.

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