7 Surprising Ways the BoC's Rate Cut Could Affect Your Mortgage

The Bank of Canada (BoC) just dropped the rate by 25 bps - FINALLY!!! This is a bit of relief for variable and adjustable rate mortgage holders, and I couldn't be more excited to share the news with you! 🎉

Let's chat about how this cut might shake things up for you as a homeowner or homebuyer. Just remember, we're looking at historical trends here, not crystal-ball predictions. #CrystalBallNotIncluded

More Early Renewal Offers

1. Lenders are likely to start pushing early renewal offers more aggressively. With a wave of renewals and refinances coming up, they’ll be reaching out earlier and more often. Switching could be easier and less costly than you think. If your maturity dates are near or prepayment charges are manageable, let's chat about your options!

   Increased Demand

2. Rate cuts often lead to easier qualifications, better homebuyer sentiment, and more purchasing power. While this quarter-point drop might not cause a flood of mortgage applications, it should definitely be more than the current trickle. With higher demand, expect longer turnaround times, so starting the mortgage process early is a smart move. Seriously, don't wait!

   Home Price Inflation Concerns

3. Home prices could rise if rates keep dropping and employment or immigration stays stable. Places like Calgary with strong fundamentals might see even faster growth. This means you might need to put more down and could face multiple offers soon. Time to get prepared!

   Improved Short-Term Rates

4. Short-term loan pricing will likely get better, with one- and two-year rates possibly dropping into the 5% range. But watch out for higher fixed-rate prepayment penalties, which can make refinancing less appealing if you need to break a fixed mortgage. If you’re buying or selling, give me a shout to understand potential penalties and how they could impact your future buying power.

   Reduced Renewal Risk Panic

5. The fear of renewal payment shock has been hanging over us, but a potential 175+ bps drop in rates over the next few years might ease this worry. Even though living costs are still high, federally mandated mortgage relief, steady income growth, and a liquid housing market should prevent a wave of defaults. However, the non-federally-regulated market might see more borrower pain due to stricter qualifying regulations. Keep an eye on this if you're in that boat.

   More People Opting for Floating Rates

6. If we get a few more low inflation reports, we could see a bunch more rate cuts. This means more people might go for adjustable-rate mortgages because they offer immediate payment relief. Most of my clients are still in fixed rates, so I don't think there will be a huge shift, but for some, it might make sense. Especially those who get the overall cost of borrowing and need an exit strategy. Variable or adjustable rates often come with just a three-month interest penalty if you break the term, which can be a smart move for some.

   Increased Investor Activity

7. Right now, it's tough to get positive cash flow with the current rates. But the outlook for the next few years looks way better if you've got adjustable-rate rental financing. Investors with solid capital, they might see this BoC rate cut as a green light to jump back into the real estate game. They'll probably go for short-term or floating loans to take advantage of the situation. Exciting times ahead!

While it’s super exciting to think about these changes, most people are still sticking with fixed rates. If you’re already locked in, this BoC rate drop won’t change your current payment, but it might affect penalty costs if you’re looking to sell. Let’s chat and figure out what this means for you—book a call at www.meetwithamanda.ca. I’d love to hear your thoughts and help you navigate these changes!