The Bank of Canada has lowered its key interest rate by 0.25% to 4.75%, marking the first cut in over four years. This decision can impact your finances in several ways.
Impact on Mortgages
For those with variable-rate mortgages, this rate cut means immediate savings. When banks reduce their prime rates, which are influenced by the Bank of Canada’s rate, borrowers with variable-rate mortgages will see their monthly payments decrease. For example, if you have a $600,000 mortgage with a 6% interest rate, this cut could save you around $88 per month. Fixed-rate mortgages, however, won't change until it's time for renewal.
Effect on Loans and Credit Cards
Lines of credit are typically tied to the prime rate, so you might notice a decrease in interest on these loans if banks follow the central bank's lead. Credit card rates are usually fixed, so don't expect significant changes there.
Savings Accounts and GICs
Higher returns on savings accounts and guaranteed investment certificates (GICs) may decline if banks lower their prime rates. While the link between borrowing costs and savings rates isn't direct, banks often reduce savings rates to balance lower lending rates. It might be wise to shop around, as smaller banks or credit unions could keep rates higher to attract customers.
Future Expectations
Bank of Canada Governor Tiff Macklem mentioned that further rate cuts are possible, with some experts predicting the rate could drop to 4% by year-end. If this happens, borrowers with a $600,000 mortgage could save around $349 a month.
In summary, the rate cut could mean lower monthly payments for mortgage holders and potentially lower returns on savings. It's an excellent time to compare rates and consider your financial options.
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