Borrowers may be surprised to see they did not get the Bank of Canada’s full discount. It’s common for lenders to slash the spread to prime on variable-rate when interest rates are trending down
New single family houses billed as estate cottages are seen in an aerial view, in Delta, B.C., on Aug. 12.Mortgage borrowers across Canada are likely feeling hopeful. With the central bank’s latest interest-rate cut, the benchmark cost of borrowing has dropped a cumulative three-quarters of a percentage point since June, bringing lenders’ prime rates – and by extension variable mortgage rates – down with it.
Assuming the lender’s prime rate is currently 6.45 per cent, that leaves you with a rate of 5.3 per cent. Now let’s say the BoC cut its benchmark rate again by a quarter-percentage point, and the prime rate falls to 6.2 per cent – that same mortgage rate would now be to 5.05 per cent . It’s a pattern seen in every rate-cutting cycle – even during the emergency rate cuts at the start of the pandemic lockdowns. This time around, the spreads started narrowing in July, as the BoC delivered its second quarter-point cut.
These borrowers, many of whom are now ending five-year terms, are renewing in a much higher interest-rate environment. “This increase in mortgage costs will squeeze households’ budgets and savings further, particularly for those that took on large amounts of mortgage debt when the cost of borrowing was low,” the report says.
Cent Mortgage Bank Canada Report Rates Borrower Bank Of Canada Statistics Canada Canada
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