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Rates are lower, but mortgages aren't getting cheaper yet

The Bank of Canada lowered its policy rate by a quarter point last week, down to 2.25 percent. Normally, that signals lower borrowing costs and a push to cool inflation. This time, the decision was driven more by a slowing economy than by prices.

What pushed the Bank to cut rates

Canada’s economy is losing speed.

• GDP dropped 1.6 percent in the second quarter
• Business investment has slowed because of uncertainty around trade and tariffs
• Unemployment reached 7.1 percent in September
• Wage growth is softening

The Bank of Canada said it knows rate cuts won’t fix those problems. It also repeated that its main job is to keep inflation stable, even though inflation is still above its target.

Inflation is still high

• Headline inflation was 2.4 percent in September
• Without taxes included, it sits closer to 2.9 percent
• Core inflation remained around 3 percent

The Bank says “underlying” inflation feels closer to 2.5 percent. That is an estimate, not a measured figure. In short, inflation has not disappeared, and rate cuts alone won’t bring it down. The Bank is expecting a weaker economy to slow it over time.

Will this lower mortgage costs

Only variable-rate mortgages react directly to overnight rate cuts. Fixed mortgage rates follow Government of Canada bond yields.

When the rate cut was announced, the 5-year bond yield actually went up by more than 10 basis points. That pushed fixed-rate mortgage costs higher, not lower.

So for now, this rate cut mainly affects variable-rate borrowers, not homeowners on fixed terms.

Why it matters

The Bank is choosing to support a weakening economy, even if it risks keeping inflation around longer. In its report, it also hinted at slower investment and possible write-offs ahead. That suggests it is trying to get ahead of a downturn that isn’t fully visible yet.

If you want to talk about how this affects your mortgage, buying plans or timing a sale, we're here.

Talk soon,
CHRIS, PATRIC, JULIE, JASMINE, KRISTI & BRELL

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