Posted On Dec 11, 2024

Bank of Canada Rate Drop: What It Means for New Home Buyers and Refinancing

For the fouth time in 2024, the Bank of Canada has reduced its prime rate by 50 basis points (0.5%), marking a total yearly drop of 1%. This shift raises a critical question: is this monumental news or just a small nudge in the grand scheme of things?

If you’re a new home buyer or considering a refinance, here’s what this means as we head into Christmas and 2025.

Lower Rates: A Win for Home Buyers and Investors

Let’s face it—nothing excites a new home buyer or property investor more than borrowing costs becoming slightly less expensive. These rate reductions might be the push that finally gets fence-sitters to leap into homeownership. But, while many celebrate, others are holding out for even lower rates—hoping for a return to the sub-2% rates we saw in 2018.

Those ultra-low rates were indeed game-changing. They boosted purchasing power, enabling buyers to afford larger, more luxurious homes for less. However, they also created challenges for those who assumed rates would stay low forever. Today’s market is a reminder that interest rates fluctuate based on various factors—pandemics, elections, and global economic shifts—leaving us all navigating uncharted waters.

A Personal Perspective on Rising and Falling Rates

I bought my first home as a young sailor in Victoria, BC, back in 1991. At the time, interest rates were steep—11.25%—and I paid $75,000 for a modest two-bedroom condo. My monthly mortgage payment was $700, which, adjusted for today’s rates (~4.49%), could now service a loan of around $126,000—nearly double the value.

This comparison underscores a vital point: while rate reductions are helpful, waiting for the "perfect" rate might not yield significant savings. Consider this—at 4.49%, your monthly payment for every $10,000 mortgaged is approximately $55. If rates drop by another 0.5%, your payment decreases to around $53—just $2 less per $10,000.

Should You Wait for Rates to Drop Further?

Ask yourself: Is waiting for a marginal decrease worth the potential risks? Here’s why acting sooner might be the smarter move:

  1. Supply and Demand Dynamics: If many buyers wait for rates to fall further, spring could bring fierce competition. More buyers vying for fewer homes often drives prices up, eroding the savings from lower rates.
  2. Long-Term Perspective: Buying now positions you to benefit from potential future appreciation. Think about how often people say, “I wish I’d bought 10 years ago.”

As the Chinese proverb wisely states, “The best time to plant a tree was 20 years ago. The second-best time is now.”

Take Action to Afford Your Dream Home

Whether you’re a first-time home buyer or looking to refinance, these rate drops can offer an excellent opportunity to lock in favorable terms. Waiting might seem tempting, but it could cost you in the long run—whether through higher prices or reduced housing availability.

If you're considering buying or refinancing, consult a mortgage professional today to discuss your options. Affording a home may be more accessible than you think, and your future self will thank you for taking action now.

What’s Next?

In the coming months, I’ll be sharing insights into navigating refinancing, preparing for spring’s competitive market, and understanding affordable homeownership strategies. Stay tuned and connect with me for personalized advice on your journey to owning or refinancing your home.