This morning, the Bank of Canada lowered its key interest rate by 0.25%, bringing the prime rate down to 4.70%. This move appears to mark the official start of a new rate-cutting cycle. 

Just a month ago, the consensus was that interest rate cuts wouldn’t come until year-end or even 2026. But the data shifted very quickly.

• Employment: The August data was released, and we saw unemployment tick up to 7.1%, with job losses highlighting growing cracks in the economy.

• U.S. Pressure: The Federal Reserve is widely expected to begin its own cutting cycle later today, putting massive pressure on the Bank of Canada to match

• Inflation: Core inflation barely budged, remaining around 3% — still too high in normal times, but a slight dip plus a small month-to-month CPI contraction (-0.1%) gave cover for today’s move.

As always, the bond market sniffed this out early as five-year yields began retreating weeks ago, allowing mortgage lenders to begin to adjust fixed rates downward.

What this means for you:

• Variable rate holders: Congratulations — your patience has paid off. Your new rate interest rate tomorrow will sit lower than most fixed rate deals signed in the past three years. Staying the course positions you well with further cuts likely. You may soon have the ability to lock into a 5-year fixed rate with a ‘3’ in front of it – no longer having to think about interest rates again until the next decade.

• Fixed rate shoppers: Earlier this month fixed rates began trending downward (See bond yield chart above).  Some banks began offering 30-day quick close rate specials for PURCHASES (click here to learn more) and REFINANCES (click here to learn more). Also, with 120-day locks available, you can capture today’s rates and benefit from float-downs if banks rates reduce further before your closing date.

• The path ahead: Markets now expect at least one more cut of 0.25% before the end of this year, meaning almost every variable rate mortgage in Canada will be sitting between the mid to high 3’s, a level that historically re-energizes affordability and housing activity.

Our take:

This cut doesn’t solve Canada’s economic challenges overnight — higher rates have already strained households and slowed growth. But for mortgage holders, today’s decision signals a turning point. If core inflation trends lower and unemployment continues to rise, the Bank of Canada will likely deliver more relief in October and/or December.

Until then, clients should be nimble, keep an eye on bond and fixed-rate movements, and lean on expert advice to decide your course. 

As always, if you are looking for guidance, want to talk strategy, or have questions regarding today’s Bank of Canada move, do not hesitate to reach out by responding to this email.