📉 Did the Bank of Canada just cut rates? Thinking your mortgage rate will automatically drop? Not so fast! While it’s true that the Bank of Canada (BoC) influences interest rates, your mortgage rate isn’t directly tied to it—at least not in the way most people assume.
So, why don’t mortgage rates always follow Bank of Canada cuts? The answer lies in two key financial factors:
1️⃣ Prime Rate – Driven by the Bank of Canada’s Overnight Rate
2️⃣ Fixed Mortgage Rates – Driven by the Bond Market
Let’s break it down. 👇
🔍 Understanding the Prime Rate & Variable Mortgage Rates
The prime rate is the benchmark rate set by Canadian banks that influences variable mortgage rates and home equity lines of credit (HELOCs).
✅ What Drives Prime Rate?
The Bank of Canada sets the overnight lending rate (the rate at which banks lend money to each other overnight).
When the BoC lowers the overnight rate, banks may lower their prime rate—but it’s not guaranteed.
A lower prime rate can lead to lower variable mortgage rates (but each bank decides how much they adjust).
📌 Example: If the BoC cuts rates by 0.25%, banks might reduce their prime rate by 0.15%–0.25%, affecting variable-rate mortgages.
🚨 BUT—fixed mortgage rates don’t follow this pattern! 🚨
📉 Fixed Mortgage Rates Are Controlled by the Bond Market
Unlike variable rates, fixed mortgage rates are NOT tied to the prime rate. Instead, they are directly influenced by the bond market, especially Canadian government bond yields.
✅ What Drives Fixed Mortgage Rates?
5-Year Government Bond Yields 🏦📈
Inflation Trends 📊
Global Economic Conditions 🌍💰
Investor Sentiment & Market Demand 📉
When bond yields rise, fixed mortgage rates increase.
When bond yields fall, fixed mortgage rates decrease.
📌 Example: If investors expect future inflation to remain high, bond yields may rise, pushing up mortgage rates—even if the Bank of Canada just cut rates!
🚨 This is why fixed mortgage rates can go up even when the BoC lowers its key interest rate!
🏠 What Does This Mean for Homebuyers & Homeowners?
💡 If you have a variable-rate mortgage:
A BoC rate cut might lower your interest rate, but it depends on how much banks adjust their prime rate.
Expect gradual changes rather than instant savings.
💡 If you have (or want) a fixed-rate mortgage:
Ignore BoC rate cuts—watch bond yields instead!
Fixed mortgage rates change based on investor expectations, inflation, and bond market movements.
💡 Thinking of locking in a rate?
If bond yields are trending downward, waiting could be beneficial.
If inflation fears are rising, locking in a fixed rate sooner rather than later might be wise.
🔮 Future Outlook: Where Are Mortgage Rates Headed?
Predicting mortgage rates isn’t easy, but experts analyze:
📊 BoC rate policies – Will they continue cutting?
📈 Inflation trends – If inflation stays high, rates may not drop quickly.
📉 Bond market movements – Keep an eye on 5-year bond yields.
📢 Final Thoughts: Don’t Assume Your Mortgage Rate Will Drop!
🏦 Bank of Canada rate cuts do NOT automatically mean lower mortgage rates. It depends on whether you have a fixed or variable mortgage:
✔ Variable rates → Watch the prime rate
✔ Fixed rates → Watch bond yields
🚀 Thinking about your next mortgage move?
📞 Contact a mortgage expert to assess your best options.
💰 Stay informed on market trends to lock in the right rate at the right time.
🔍 Check out PK Realty’s latest mortgage insights to stay ahead of the curve.
💡 Still have questions about how rate cuts affect your mortgage? Drop a comment below or reach out for personalized advice! 👇
📌 Share this post with anyone confused about mortgage rates! 📤
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Disclaimer:
The information provided in this blog is for general informational purposes only and should not be considered legal, financial, tax, or investment advice. While we strive to ensure accuracy, real estate laws, market conditions, and regulations change frequently. Readers are encouraged to conduct their own research and consult with qualified professionals such as real estate attorneys, financial advisors, mortgage brokers, or tax experts before making any decisions related to buying, selling, or investing in real estate. We do not assume any liability for actions taken based on the information provided in this blog.