On-and-off again tariff threats from U.S. President Donald Trump have pushed the Bank of Canada to drop interest rates again.
The Bank of Canada announced a 25-basis point cut to its policy interest rate Wednesday, March 12, bringing the Bank’s rate to 2.75%. This is the seventh straight cut from Canada’s central bank, stemming back to last June.
“Economic growth in the first quarter of 2025 will likely slow as the intensifying trade conflict weighs on sentiment and activity. Recent surveys suggest a sharp drop in consumer confidence and a slowdown in business spending as companies postpone or cancel investments,” the Bank of Canada release states.
Soon after U.S. President Donald Trump implemented tariffs of 25% on Canadian goods, and 10% on energy exports from Canada, economists began changing their tune — it had previously been expected the Bank would start cooling its cutting following January’s announcement.
“We now look for the quarter-point pace to continue in each of the next four meetings until July, taking the rate to 2%,” said the Bank of Montreal’s Chief Economist Douglas Porter in a report released earlier this month.
How the interest rate cuts affect homeowners
Those with variable rate mortgages will feel modest benefits immediately. The rate cut will mean a decrease in the interest charges on their mortgage, reducing their monthly payment and potentially leading to faster mortgage repayment.
Those with fixed payments won’t see a change to their bi-weekly or monthly payments, but more of their payments will go to the principal owing. Fixed mortgage rates are influenced more by long-term bond yields, which already factor in expected rate cuts, rather than the Bank’s policy rate.
With more than a million mortgages coming up for renewal in 2025, these continued cuts will be welcomed news to many who are worried about what their new rates will be.
According to a recent Royal LePage survey, 57% of Canadians who are renewing the mortgage on their primary residence in 2025 expect their monthly mortgage payment to increase. Of those who expect their monthly mortgage payment to rise upon renewal, 81% say the increase will put financial strain on their household.
“It’ll soften the blow for people who are renewing their mortgage, but they will still have to renew at higher rates than they originally had five years ago, assuming they had a five-year fixed,” said Chris Jokel, Senior Data Engineer at the Canadian Real Estate Association (CREA).
The Bank of Canada restated their mandate, saying monetary policy cannot offset the impacts of a trade war. What it can and must do is ensure that higher prices do not lead to ongoing inflation.
How home buyers benefit from a lower policy interest rate
Canadians looking to enter the real estate market will also welcome this news as it will lead to lower borrowing costs.
Not only that, the 2.75% policy rate increases one’s purchasing power. You’re able to qualify for a larger mortgage, meaning more home. The policy rate is nearly half of what it was in spring 2024 (5%). This perception could boost buyer confidence, which could lead to more competition during what is typically a busy time for housing markets.
Of course, tariffs and the trade war could lead to turbulent economic waters, which may halt any major purchases from Canadians until stability returns.
Why should you use a REALTOR®?
Your REALTOR® is your personal real estate MVP. While you’re figuring out financing, they can already get to work behind the scenes. If you’re buying, this means setting up searches for you, attending open houses on your behalf, and asking around to their connections about what might be coming available — hey, with interest rates dropping, anything you can do behind the scenes to get a leg up on your competition is worthwhile.
If you’re selling, your REALTOR® can get to work marketing your property right away, getting it ready for staging and compiling documentation, all without disrupting your routines too much.
By now you know interest rates impact the Canadian real estate landscape and that likely isn’t about to change any time soon. Making the right decision at the right moment seems like a lot of pressure when you don’t know where interest rates will be on a month-to-month basis.
Thankfully, REALTORS® monitor market trends and housing data to make sure, whether you’re buying or selling, your best interests are being kept top of mind.
— REALTOR.ca