Posted on
July 24, 2024
by
Jeff Johnson
By Royal Bank Of Canada
In a move widely anticipated by financial experts, the Bank of Canada reduced its overnight policy rate by another 25 basis points, bringing the rate to 4.5%. The second straight rate cut is a positive signal for both homeowners and prospective buyers – but what does it really mean for you?
First-time homebuyers may gain some confidence
As we wrote last month, while 25 basis points doesn’t make for a material change for homebuyers, it does represent a positive trend that will surely give buyers greater confidence to enter the market. Lower rates mean affordability improves – and if rates continue their downward trajectory, these incremental decreases will add up to a meaningful difference for buyers.
After last month’s decrease, the Canadian Real Estate Association (CREA) reported that national home sales climbed, and the number of newly listed properties rose month-over-month in June. This second cut may spark more optimism among buyers and result in renewed life in the market – in other words, more homes may be listed, bought and sold.
Keep in mind, it appears that the Bank of Canada is lowering interest rates gradually – it is speculated that they don’t want rate cuts to spark a sharp rise in housing prices. If you’re eager to buy, it may be worth taking a similarly restrained approach. Here are some tips to consider:
Lock in a mortgage rate with a lender. Some lenders, like RBC, let you lock into a rate for 120 days. So, if you believe you’re close to purchasing, locking in a rate can give you some peace of mind. If rates stay the same or go up, you keep the rate you’re locked in at. But if they go down, you could get access to a new lower rate.
Choose a rate type and term that’s right for you. With interest rates in the news, there are lots of opinions about what type of mortgage Canadians should be choosing right now. The reality is, the best mortgage type is the one that’s right for you. Whether you choose a fixed rate or variable rate mortgage, a short term or a longer term, the decision is personal and can’t be found in a general opinion blog. It’s best to seek advice from a mortgage specialist, discuss your cashflow, lifestyle and plans for the future, and choose a mortgage accordingly.
Exercise patience. It’s still a buyer’s market, which means as a buyer, you have more choice, time and leverage. Take the time to get your financing in order so you know what you can afford, find the right home for you at the right price, and be sure to do your due diligence with homes you’re interested in – this includes getting a home inspection to protect yourself from unexpected future expenses – before you close the deal.
Good news for variable rate mortgage holders
If you have a variable rate mortgage, the rate cut is good news, no matter how your mortgage is structured. If your mortgage payments automatically increase or decrease in harmony with mortgage rates, your regular mortgage payment may be going down. If your mortgage payments stay the same regardless of the current interest rate, you’ll see more of your regular payment applied to the principal of your mortgage – this means you could pay off your mortgage at a faster rate compared to a higher interest rate environment.
