The Bank of Canada today announced an emergency rate cut, lowering its target for the overnight rate by 50 basis points to 0.75% percent. This unscheduled rate cut was in response to the global threat of COVID-19.
The rate change is not effective immediately – it will come into effect on Monday, March 16th 2020. In its statement, the Bank acknowledged the proximity to its most recent rate cut, just 11 days earlier:
“It is clear that the spread of the coronavirus is having serious consequences for Canadian families, and for Canada’s economy” the Bank’s statement read.
“In addition, lower prices for oil, even since our last scheduled rate decision on March 4, will weigh heavily on the economy, particularly in energy intensive regions.”
Want a better mortgage rate?
What does the emergency rate cut mean?
James Laird, co-founder of Ratehub.ca and President of CanWise Financial, welcomed the swift action taken by the Bank of Canada in responding to the Coronavirus threat.
“The Bank is acting forcefully to reduce the impact of the coronavirus on the economy” he said.
“It is good to see the Bank paying close attention to these quickly moving events and reacting in a strong and appropriate manner. The Bank has stated that they are open to moving the rate down further should the conditions warrant.
“It is in these uncertain times that Federal institutions acting quickly and intelligently can reduce the negative impact of unforeseen events.”
Canadians who currently have a variable rate mortgage will benefit the most from this Bank of Canada announcement, as their rate has now dropped by 1% in less than two weeks. For every 1% a variable mortgage rate drops, borrowers stand to save approximately $584 per year for each $100,000 of their mortgage balance.
Since the announcement, the Canada 5-year bond yield has remained stable, which shows that the bond market was anticipating this rate cut. Until the bond yield drops further, Canadian’s should expect today’s fixed rates to remain.
James Laird says Canadians looking to buy a home or renew their mortgage need to stay diligent.
“In these turbulent times, anyone shopping for a mortgage should check Ratehub.ca frequently to ensure they get the best rate available. Anyone with an existing mortgage should consider paying the penalty to break their mortgage and refinance to a lower rate.”
Changes to Mortgage Payments
According to Ratehub.ca’s mortgage payment calculator, a homeowner who put a 10% down payment on a $500,000* homewith a 5-year variable rate of 2.60% amortized over 25 years (total mortgage amount of: $ 463,950)has a monthly mortgage payment of $2,102.
With today’s additional 50-basis point rate cut, their mortgage rate has decreased to 1.60% and their monthly payment has decreased to $1,876.
*January 2020 average home price in Canada was $504,358 according toCREA