The Bank of Canada (BoC) brought its key interest rate down by 0.25 per cent to three per cent in 2025’s first update in January.
At the time, 25 per cent tariffs from the U.S. were a threat, and expert speculation took them into account.
The tariffs became a reality earlier this week. Days into tariffs taking effect, U.S. officials hinted at pausing tariffs for another month and removing certain agricultural products from the list of tariffed items.
On Thursday afternoon, U.S. President Donald Trump partially reversed sweeping tariffs on some items for another month. The White House said goods compliant with the North American trade agreement will be exempt until April 2.
Overall, there is growing uncertainty, and tariffs remain a swinging pendulum.
This year’s second BoC interest rate update is scheduled for Wednesday, March 12. This time, industry experts have more tariff-related concerns, including the U.S.’s game of will-they-won’t-they. Once again, many predict a consecutive cut.
“Now that blanket import tariffs have been officially implemented, it’s looking more likely that the Bank of Canada will cut by another quarter of a percentage point on March 12, as it uses the tools on hand to shore up the economy as best it can amid an uncertain outlook,” shared Penelope Graham, a mortgage expert at Ratehub.ca.
She believes the trajectory for future cuts from the central depends mainly on how long tariffs remain enforced.
“If they persist, the BoC will need to adjust its target rate to counter the damage being done to the economy, despite the inflation risks that come alongside a very accommodating rate. While core inflation will continue to be a focus for the BoC, it may have to sacrifice keeping it at its two per cent target in the future if economic stimulus is needed,” she noted.
What happens to housing and mortgages?
As a result of the tariffs kicking in on March 4, bond yields plunged to 2.5 per cent and have only recovered by 0.1 per cent so far. Graham says this modest recovery was due to the month-long tariff reprieve for Canada’s auto sector.
Plunging yields mean lenders have the room to lower their fixed mortgage rates. Graham said the best insured five-year fixed rate in Canada is now 3.84 per cent – a low not seen since June 2022.
“This has narrowed the spread between the lowest fixed and variable rate to just 36 basis points, offering borrowers more rationale to lock in,” she added.
Now is a volatile time to shop for a home or a mortgage rate. Monthly national sales dropped in January.
“The safest course of action for mortgage borrowers, whether getting a new rate or coming up for renewal, is to get an application or rate hold in with a lender as soon as possible,” advised Graham. “This will help them hedge against rate volatility in the near future, while providing access to the lowest rates available to them today.”
How a Bank of Canada rate cut will change your mortgage payments
Here’s a hypothetical scenario using Ratehub.ca’s mortgage payment calculator and the average home price in Canada in January 2025 — $621,753 — per the Canadian Real Estate Organization (CREA).
You’re a homeowner who put a 10 per cent down payment on a $670,064 home with a five-year variable rate of 4.20 per cent amortized over 25 years (total mortgage amount of $621,753). You have a monthly mortgage payment of $3,338.
If the BoC announces that the key interest rate has dropped to 2.75 per cent, your variable mortgage rate will decrease to 3.95 per cent, and your monthly payment will drop to $3,254.
This means you’ll pay $84 less per month or $1,008 less per year on your mortgage payments.
