The Bank of Canada’s First Rate Cut of 2025

The 2025 housing market is starting the year with optimism as the Bank of Canada announced today that it is lowering the overnight lending rate by 25 basis points from 3.25% to 3%. This follows two consecutive half-point rate cuts in October and December and will bring further relief to current variable rate mortgage holders. 

In its December announcement, the Bank noted that it will be “evaluating the need for further reductions in the policy rate one decision at a time,” indicating an easing in the Bank’s monetary policy. Going forward, future rate cuts will likely depend on a wait-and-see approach, with a rate hold possible as early as March.  

With borrowing costs lowering, the 2025 spring market is primed for an influx of activity. The overnight lending rate was held at 5% during last year’s spring market, keeping many would-be buyers on the sidelines. By the time the Bank announced its first rate cut of 2024 in June, momentum had already slowed down, missing the prime spring season. 

Spring is considered the peak season for real estate for a reason. Warm weather provides ideal open house conditions, and families with children often buy and sell to prepare for a summer move. With more listings on the market and flowers in bloom, homes also look their best. 

Now that interest rates are stable, with some 5-year fixed rates as low as 4.04%, home buyers and sellers have the confidence they need to make their move. This should lead to an explosion of activity. With stable interest rates and some 5-year fixed rates as low as 4.04%, homebuyers and sellers now have the confidence to act. This stability is expected to spark a surge in market activity.

Evidence of a more robust spring market is already building. According to the latest report from the Canadian Real Estate Association (CREA), the fourth quarter of 2024 was one of the strongest sales quarters in the last twenty years. Nationally, December sales were up by 19.2% from 2023, while in Ontario and British Columbia, sales increased by 8.1% and 24.7% respectively. 

At the same time, inventory is rising, giving buyers a much larger selection to choose from compared to last year. New listings in Toronto experienced a year-over-year increase of 20.5% and in Hamilton-Burlington, new listings rose by a whopping 37%. 

According to Ratehub.ca’s mortgage payment calculator, a homeowner who put a 10% down payment on a $676,640 home with a 5-year variable rate of 4.45% amortized over 25 years has a monthly mortgage payment of $3,458.

With the Bank of Canada’s 25-basis point rate decrease, their variable mortgage rate will decrease to 4.20% and their monthly payment will decrease to $3,371, representing $1,044 in savings per year. 

While it may be tempting for some borrowers to switch from a fixed to a variable rate, the decision should be carefully considered, especially in the face of economic uncertainty. The Bank of Canada noted in its January release that “lower interest rates are boosting household spending and, in the outlook published today, the economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested.”

Penelope Graham, mortgage expert at Ratehub.ca, explains:

 “The bond market has been volatile in recent weeks, as investors react to shifting messaging on tariff threats, and the overall implications of a Trump presidency for markets. Canada’s five-year yield has swung from a high 3.31% on November 21, down to 2.97% this week, which may put downward pressure on fixed mortgage rates. However, given how quickly investor sentiment can change, rate pricing could go in any direction.”

Graham recommends that anyone shopping for a mortgage right now get a pre-approval and lock in with a rate hold. This will guarantee you access to the lowest rates possible, regardless of any economic shocks that might come in the next few weeks. 

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