The Bank of Canada has been cutting its policy rate since mid-2024, and the effects are rippling through the mortgage market. If you have a variable-rate mortgage, you are already seeing lower payments. If you are on a fixed rate or about to renew, you are wondering: should I switch?
Here is what the rate cuts mean for different types of borrowers in BC and what moves to consider right now.
How the BoC Rate Affects Your Mortgage
The Bank of Canada’s overnight rate directly influences variable mortgage rates and lines of credit. When the BoC cuts by 0.25%, your variable rate drops by the same amount, and your payment adjusts at your next payment date.
Fixed rates work differently. They are tied to bond yields, which reflect where the market thinks rates will be in the future. Fixed rates often move ahead of BoC decisions — they can drop before a cut is announced or rise on expectations of future inflation.
Variable Rate: The Wins Are Adding Up
If you chose a variable rate mortgage in the last year or two, the cumulative BoC cuts have likely reduced your rate significantly. On a $600,000 mortgage, each 0.25% cut saves roughly $90/month. After multiple cuts, that adds up to real money.
If you are on an adjustable-rate mortgage (ARM), your payment decreases automatically. If you are on a variable-rate mortgage with fixed payments, the same payment now puts more toward principal — you are paying your home off faster.
Fixed Rate: Should You Break and Switch?
This is the most common question we are getting right now. If you locked in a fixed rate above 5% and current rates are in the low 4s, breaking your mortgage might save you money — but only if the savings outweigh the prepayment penalty.
The math depends on your specific penalty amount (call your lender or ask us to calculate it), how much time is left on your term, and the rate difference between your current rate and what is available today. In many cases, homeowners with 2+ years remaining on a high fixed rate can save $10,000-$30,000 net of penalties by refinancing now.
Fixed vs. Variable: What to Choose Now
With the BoC signaling a cautious approach going forward, here is how we are advising clients:
- Variable rate: Best if you believe rates will continue to drop or stay flat. You benefit from every future cut. Best for borrowers comfortable with payment fluctuation.
- Short-term fixed (1-3 years): A good middle ground. Lock in today’s lower fixed rate and reassess in a few years when the rate environment is clearer.
- Long-term fixed (5 years): Best if you want certainty and are locking in at a rate you are happy with. Protects you if inflation resurges and rates climb again.
What Buyers Should Do Right Now
If you are buying a home in BC, this is a favourable rate environment compared to 2023-2024. Get pre-approved now to lock in current rates for 120 days. Even if you do not find a home right away, you are protected if rates tick back up. And if rates drop further before closing, most lenders will give you the lower rate.
Get a Rate Check
Whether you are renewing, buying, or wondering if you should break your current mortgage, E7 Mortgages can run the numbers for you. Free, no obligation. Call (778) 834-9618 or WhatsApp us — we respond within the hour.