Why brighter days are ahead for mortgage shoppers

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Why brighter days are ahead for mortgage shoppers

Robert McLister: Millions of Canadians have suddenly found more wiggle room in their budgets

Robert McLister
Published Jul 25, 2024  •  4 minute read
This week's interest rate cut will save Canada’s floating-rate borrowers roughly $15 to $21 a month per $100,000 borrowed.
This week’s interest rate cut will save Canada’s floating-rate borrowers roughly $15 to $21 a month per $100,000 borrowed. Photo by ASHLEY FRASER/Postmedia

Despite an increasingly sketchy unemployment picture, the forecast is slowly getting brighter if you’re a borrower or home buyer.

Case in point: The Bank of Canada just gave mortgagors another housewarming present by way of its 25 basis point rate cut. Big banks then matched the move, lowering Canada’s benchmark prime rate to 6.70 per cent on Thursday.

This ‘gift’ will save Canada’s floating-rate borrowers roughly $15 to $21 a month per $100,000 borrowed, depending on their rate, amortization, whether it’s a new or existing loan and whether it’s a mortgage or interest-only home equity line of credit.

With inflation also taking a dip, millions of Canadians suddenly find more wiggle room in their budgets. But the good news doesn’t end there. Expect three more treats for mortgage borrowers before the holiday lights go up in December. 

Dual rate cuts in September

Officially, there’s just a 60 per cent chance of another Bank of Canada cut at the next meeting on September 4, according to the bond market. But I’m here to tell you the true odds are probably higher than that for six reasons:

 

  1. The central bank tipped its hand Wednesday, telling us it’s worried about rates being too restrictive and that we “need growth to pick up.” Not cutting again in September would fly in the face of that mission.
  2. Unemployment is accelerating, and historically, when it ramps up after the start of a rate-cut cycle, it keeps ramping up until enough rate cuts save jobs.
  3. Mortgagors are still getting whacked with renewal rates up to 280 bps higher than what five-year borrowers signed up for in 2021, for example. That’s adding more and more drag to Canada’s economy each month.
  4. Inflation could make further progress in the next August 20 CPI report, given slowing growth and statistical effects (a large July 2023 value is falling out of the year-over-year calculation). This could nudge Bank of Canada boss Tiff Macklem towards another cut.
  5. Central bank surveys show that one-year inflation expectations are improving, and that mindset can be self-fulfilling.
  6. For what it’s worth, history shows that back-to-back rate cuts are usually followed by a third cut.

 

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