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Understanding the Bank of Canada’s recent interest rate cut is crucial.

We must grasp how this decision impacts the housing market and mortgage rates.

A rate cut is a big financial move.

But it affects variable-rate and fixed-rate mortgages differently.

And it’s broader economic effects are complex. 

In this newsletter, I’ll break down how the interest rate cut affects existing mortgage payments, and current rates.

I’ll also explore what we can expect next from rates.

And I’ll analyze what this means for the real estate market. 

Now, let’s dive in.

The Bank of Canada’s recent interest rate cut is making waves.

It’s a welcome relief for those with variable-rate and adjustable-rate mortgages. 

Here’s the lowdown:

With Variable Rate Mortgages (TD, BMO, RBC, CIBC), your interest cost will drop. But, your payment will stay the same.

Adjustable Rate Mortgages (Scotia, National, non-banks): your next payment will be cut by about $15/month for each $100,000 you owe. 

It’s a welcome change, but don’t pop the champagne yet—this doesn’t directly affect fixed-rate mortgages. 

However, we will see slight decreases in longer fixed rates.

This will continue to happen as the trend of interest rate cuts continues and lower rates become real.

With more cuts are coming, fixed-rate mortgages should get cheaper.

This should happen by the end of the year or early in 2025.

And the gamble of the variable rate mortgage option should continue to improve.

The Bank of Canada has a tricky path ahead. 

Unlike the US, Canada has cut interest rates; primarily because of our two diverging economies.

Pushing the spread too far could hurt the Canadian dollar and inflation. 

If trends continue, we will likely see another interest rate cut in 2024 (if not more).

This will set the stage for the US to do the same after their election later this year. 

Easing is now starting. But, remember, rates are very sensitive to inflation and the economy. 

We’re on the path to lower rates, but the journey is still a bumpy one ahead.

This interest rate cut doesn’t greatly change the finances of buying a home for homebuyers. 

The real estate market isn’t expected to see immediate, dramatic changes. 

However, after two years of rate hikes, and the first cut in four, it marks a big shift in consumer sentiment. 

We shouldn’t expect a sudden surge in market activity.

But, this move could help lift us from the 20-year lows we’ve seen in 2024. 

As further interest rate cuts come into play, expect a gradual increase in activity into late 2024 and early 2025.

In the GTA, the market dynamics remain split. 

Condos are in a buyer’s market with inventory setting record highs. 

The single-family home market is a bit tighter.

But, we’ve seen a big jump in inventory in the last 2 months. 

Don’t expect this interest rate cut to change these dynamics significantly.

The interest rate cut is a step toward much-needed relief for Canadians, but it’s only the beginning.

It will take time before we see significant impacts on our wallets or the real estate market. 

Stay tuned, stay informed, and remember, in the world of finance, patience is often the best strategy.