Mortgage broker Christine Buemann (left) in a discussion with a potential first-time home purchaser

By Tommy Osborne

Lower interest rates

Lower interest rates could mean good things for potential home owners

Sep 12, 2024 | 4:28 PM

PRINCE GEORGE – The Bank of Canada recently announced the key interest rate dropped for the third consecutive month, which could mean more savings for Canadians in a wide variety of areas. The 0.25% drop on its own doesn’t mark a monumental shift, but the fact it’s the third straight drop has financial experts optimistic this could indicate inflation may be getting under control.

“Canada is showing we are ahead of the curve and we’re kind of getting a little bit of control on our inflation rate, and it is trending downward,” said Raymond James Financial Advisor Angela Crowe.

“We’ll probably start seeing cars, car loans and stuff a little bit cheaper, which is good for the affordability of the average person,” Crowe continued.

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The lower key interest rate will impact inflation as a whole, so Crowe explained just about every aspect of your day to day life could see some savings. However, it could also be good news for current homeowners with mortgages or prospective homeowners looking to buy their first home.

“The decrease in itself sends the message that this period of time of uncertainty and of really high rates is ending. (…) I would say the message that most new homeowners or potential homeowners can take from it is that rates, as they are right now, are likely not going to remain as high as they are, and that the lack of uncertainty that can come in a rising rate environment is now hopefully becoming removed and that the certainty is that rates will be trending down or staying at a relatively more affordable level,” Buemann said.

“The biggest change is going to be for people who have adjustable or variable rate mortgages. Basically anyone who has a fluctuating rate that is set according to the Bank of Canada’s prime rate,” she added.

While the drop should help with inflation, just how much can you expect? This individual drop won’t see much of an impact, as some experts estimate $125 a month on a $500,000 loan, while Buemann says $11 per every $100,000. That, of course, isn’t particularly significant, but what does matter is this is the third consecutive drop, and these savings compound on each other.

“When we see interest rates drop from the Bank of Canada, it does flow into the floating rates through your line of credits as well, which means more money if you’re still making that $500 payment. More of the money goes towards the principal instead of the interest,” Crowe said.

“It’s less of a savings and more of a normalization or going back toward the interest rate that they started with and also the payment that they started with,” Buemann said.

Perhaps even more important is what this means going forward, and both Crowe and Buemann say the key interest rate should continue to fall.

“The change gives insight into the downward trajectory. I think a lot of people lost faith in how often the government would be increasing or decreasing and what they could believe from the messaging from the government. Now, as we start to trend down, this one just seems to have given more reassurance than anything that we are in fact trending down and that we will continue this sort of ongoing trend,” Buemann said.

While predicting the future is never a sure thing, the key interest rates continued drop signals that the skyrocketing inflation from the covid years may finally be settling down.

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