What Is the Impact of a Key Interest Rate Cut on Your Mortgage?

Bank of Canada Lowers Its Key Interest Rate

On September 17, the Bank of Canada cut its key interest rate from 2.75% to 2.5%. This is the first rate cut in six months.

Who benefits from this cut?

• Borrowers with variable-rate mortgages: their interest rate decreases immediately.

• People with variable-rate credit lines and loans: they will also pay less interest.

What does this mean in practice?

• On a $400,000 mortgage, the 0.25% cut saves you about $54 per month.

• Even if your payments stay the same, more of it goes toward paying down the principal. That means you’ll own your home faster.

• Since April 2024, the key rate has dropped from 5% to 2.5%. Those who took variable-rate mortgages at the peak in 2023–2024 are now saving much more.

What about fixed rates?

• Fixed rates are tied to bond yields (not directly to the key rate), but they often move in the same direction.

• Rates are already trending down. Banks are also offering promotions and allow you to lock in a rate up to 120 days in advance.

• Economists expect another possible rate cut before the end of the year.

Recent rate examples

• Best 5-year rates: around 3.94% fixed and 3.95% variable (according to Ratehub.ca).

• Posted rates at some banks are higher, but it’s common to negotiate or get discounts if you hold other financial products.

Watch the conditions

• The lowest rates usually come with restrictions (e.g., insured mortgage, minimum loan amount, fixed term).

• Many advisors currently recommend 3-year fixed mortgages at about 3.99%.

Other impacts

• Good news: personal loans, car loans, and variable-rate credit lines will cost less.

• Less attractive: savers will earn lower interest on high-interest savings accounts and guaranteed investment certificates (GICs).

👉 In short: this rate cut mainly helps borrowers with mortgages and loans. It immediately reduces their interest costs and creates long-term savings.