Variable rate mortgages are the best bet to save you money after Bank of Canada cut
After a 27-month anxiety marathon that saw 475 basis points of rate hikes, Bank of Canada governor Tiff Macklem turned into a summer Santa on Wednesday, trimming Canada’s key lending rate by 25 basis points.
The move gives mortgagors hope that there’s a lot more where that came from. And if history is a guide, they’ll get their wish.
Markets are now fully pricing in rate cuts in September and December. But if inflation behaves and we don’t get blowout jobs data in the interim, the next cut could be pulled forward to July.
Overall, markets expect more than 200 bps of rate cuts in this cycle, which could last through much of next year. That would be right on time for the bulk of those facing mortgage renewals — most of which are due in 2025 and 2026.
It’s also enough to make variable rates the odds-on favourite to save people the most money in the next five years, at least on paper.
That said, it’s paramount that folks comparison shop extensively, as the sea of advertised rates is littered with junk. In fact, the average advertised uninsured variable rate, for example, is a staggering 63 bps above the lowest advertised rate.
=In any event, with the prime rate dipping only 25 bps to 6.95 per cent, it’s no time to throw a financial freedom party just yet. Barring an economic crisis, rate cuts could be a long, drawn-out process that lasts through much of next year — assuming market forecasts are on point.=
=And that lines up with history, which suggests typical cutting cycles take more than a year to play out.=
According to most sober forecasts, the economy is about to hit a rough patch, with rising unemployment, sluggish GDP growth, continued painful mortgage renewals and surging defaults (although not the catastrophic
Read more on financialpost.com
