BoC rate pause: What should mortgage holders know?

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Real estate professionals say the Bank of Canada’s decision to hold interest rates at 5% is a positive sign for mortgage holders with loans tied to prime interest rates, though the high cost of borrowing will remain a challenge.

Recently, Canada’s central bank decided to stay with its key policy rate 5% for a 3rd consecutive meeting, the highest level in 22 years.

Daniel Vyner, principal broker at DV Capital, said the decision will be welcomed by many.

“This news may provide relief to homeowners with a mortgage product tied to prime, even for those who anticipated this hold or feel that a hold is better than a hike,” Vyner told BNNBloomberg.ca in a Wednesday statement.

Other professionals in the industry shared this perspective, saying the latest development on interest rates is a “good news announcement for mortgage borrowers.”

“Anyone who currently has a variable rate or home equity line of credit (HELOC) will be pleased that inflation is moving in the right direction, which could mean rate cuts at some point in 2024,” one said in a written statement.

Weight of high borrowing costs

Despite the positive news for mortgage owners, a real estate professional said people still face difficulty amid elevated borrowing costs.

“It’s relieving that their rates are not going to go up, their payments are not going to go up. But we’re in trying times, it hasn’t been this expensive in a very long time,” he said in a written statement.

The Bank of Canada itself acknowledged the pressure high rates are putting on housing costs on Wednesday.

“Shelter price inflation has picked up, reflecting faster growth in rent and other housing costs along with the continued contribution from elevated mortgage interest costs,” the central bank said in its official written statement.

Many homeowners will likely face a “payment shock” at the time of renewal, one continued, though he noted that potential interest rate cuts next year could provide a “degree of relief.”

“This rate is burdensome to household cash flow for Canadians with variable rate mortgages, HELOCs and unsecured lines of credit,” one said in a written statement.

Preferred products

A professional added that the interest rate decision will have implications for buyers choosing between mortgage products.

“For existing homeowners and those looking to enter the real estate market, the discussion becomes a bit more interesting as to whether they should consider opting for a variable or fixed-rate mortgage,” he said.

“Decreases in bond yields are beginning to reflect in select mortgage lenders’ interest rate offerings, furthering the spread between fixed and variable rates at this time.”

Choosing a mortgage product depends on each customer’s situation, he said. However, added that over the last year and a half, the majority of his clients were “leaning toward” fixed-rate products, due to the added stability.

“Now, the variable rate is kind of surging back in popularity, mainly because of the news that we’ve been seeing and hearing about how we’re pretty much at the peak (of interest rates),” he continued.

2024 Uncertainty

Going into 2024, Riley said the situation for mortgage owners is dynamic and will be influenced by “multiple variables.”

She said the trajectory of interest rates will be influenced by economic conditions and inflation, among other factors.

“Mortgage owners can expect uncertainty, necessitating a proactive approach to staying informed about market developments,” she said.

“Flexibility will be critical, as adjustments to mortgage strategies may be necessary based on market shifts.”

Impact on Housing Market

Laird said he believes Wednesday’s announcement will have a muted impact on the housing market in the near term.

“Since it is December, this good news announcement will likely not have much of an effect on the housing market, which is already on its usual seasonal slowdown. Anticipation for future rate cuts could support a housing market rebound in the new year,” he said.

Interest rates could drop next year, potentially in the second quarter or the third quarter, Tran said, who added this could spur activity in the housing market.

He said there is still a lot of demand in the current market, but buyers are being “pushed to the sidelines” as they await an opportunity.

“Once the Bank of Canada drops the rate, which can happen in the second quarter of next year, I think that’s going to signal to buyers that there’s probably going to be more rate drops to follow,” Tran said.

“I think the buyers are going to jump off the sidelines and enter the market, so it will get pretty busy once that happens.”