How will the Bank of Canada rate cut affect your mortgage?

The Bank of Canada delivered a second interest rate cut on Wednesday. Here's how that's impacting mortgages and how homeowners should be thinking about their renewals.

Canadians with mortgages and those gearing up for a run at the housing market have plenty of decisions to make after back-to-back interest rate cuts from the Bank of Canada.

The central bank delivered a 25-basis-point rate cut on Wednesday, bringing its policy rate to 4.5 per cent. That feeds into the prime lending rates of major banks in Canada, which are expected to decline to 6.7 per cent in the wake of the decision.

On the mortgage front, some Canadians will immediately see their next monthly payments reduced.

“Those who are most immediately impacted are those who currently have variable-rate mortgages,” says Penelope Graham, mortgage expert at Ratehub.ca.

There are two kinds of variable-rate mortgages to consider, those with adjustable payments and those with fixed costs.

Adjustable-rate mortgages will see monthly payments fall in line with the decision.

Ratehub crunched the numbers for a homeowner who put 10 per cent down on a home worth just under $700,000 on a five-year variable rate mortgage of 5.7 per cent amortized over 25 years.

In that case, a homeowner with a monthly mortgage payment of $4,019 would immediately see their mortgage rate drop to 5.45 per cent and payments lowered to $3,934. That works out to $95 less per month, or $1,140 less annually.