INTEREST RATES
Navigating Another Interest Rate Cut
On July 24th, 2024, the Bank of Canada (BoC) announced another interest rate cut, bringing its overnight lending rate down 0.25% to 4.50%. With the previous cut of 0.25% occurring on June 5th, many Canadians feel that the tide is turning (in a good way!). Wondering what these recent cuts mean for you, and what to expect going forward? Here is a quick overview of what this change means:
Why would the BoC’s rate cuts matter to me?
The BoC’s overnight lending rate influences interest rates charged by financial institutions (including Tandia). The degree to which this change impacts any individual or household depends on the type of investments, loans and mortgages they have, or hope to have in the near future. When the BoC makes a change to their rate, most financial institutions follow suit fairly quickly and adjust their Prime Rate accordingly. This wouldn’t be an immediate change, but you would notice the effects on rates within a few weeks.
How does this change affect mortgage and loan rates?
Homeowners with mortgage types that are tied to their financial institution’s Prime Rate, such as variable-rate mortgages with fixed payments, may see more of their payment being applied to principal and less to interest as a result of this change. Also, homeowners with adjustable-rate mortgages (which are also tied to Prime) could see their payment amount decrease. This cut may also reduce the interest charges on some loans, lines of credit (LOC’s) and even credit cards, depending on the holder’s current arrangements and terms.
What’s next?
With two cuts in a row having now taken place, it is expected that the BoC will announce further rate decreases later this year, continuing this trend. For many, this is very positive news. Keep in mind however not to overspend or overextend yourself even as borrowing or mortgage costs decrease. Working with a financial advisor to keep track of your financials and savings plan is a great way to stay on track. Think of it as a financial checkup to help you stay on top of your spending during a changing interest rate environment.
Remember, if you are planning to purchase a home (or switch or refinance your mortgage), set up an appointment at Tandia to go over your plan so you’ll be prepared in the event of further changes in the market. Let us help you reach those goals, and work towards that big, bright future of yours!
