Bank of Canada interest rate drop good news for mortgage holders

A major cut to the Bank of Canada’s key interest comes as welcome news to realtors and those holding variable rate mortgages – but it also signals a growing sense of uncertainty about the broader Canadian economy.

For sale signs have been a less common sight in Metro Vancouver over the past couple of years.

"Over the last two years, it's been an unprecedented time,” said Coquitlam Realtor Adil Dinani. “We've seen rates go up four and a half percent over a two-year period."

He expects sales to pick up in the new year thanks to the central bank’s decision to cut its key interest rate by 50 basis points, or half a percent.

It’s the fifth consecutive cut announced by the bank’s governor Tiff Macklem since June – and it brings the rate down to 3.25 per cent.

"Inflation is back to the two percent target and lower interest rates are beginning to pass through to stronger spending by households,” Macklem said as he made the announcement in Ottawa on Wednesday morning.

The rate drop means significant savings for some homeowners.

Those with variable rate mortgages could see their monthly payments reduced by several hundred dollars.

And those sitting on the fence, waiting for the right time, may jump into the market.

"Interest rates are oxygen for the real estate market, right?,” said Dinani. “It improves affordability so consumers are going to be more likely to come out and make a purchase with their monthly borrowing costs coming down.”

But the big rate cut also indicates a possible storm brewing for the national economy.

The threat of substantial tariffs from the incoming Trump administration in the United States adds to the uncertainty at a time when more and more Canadians struggle to find work.

"The unemployment rate rose to 6.8 per cent in November,” said Macklem. “It has been especially hard for young people and newcomers to Canada to find work."

Yet another potential rate cut early in the new year could fuel home sales, but with a stagnant economy it’s not clear if prices will also increase accordingly.