What does the recent Bank of Canada rate cut of half a percent mean to you?

If you have a variable-rate mortgage, your interest costs are about to drop—again.

The rate cut works out to roughly $30 less in monthly payments per $100,000 of mortgage debt based on a 25-year amortization. For a typical $400,000 mortgage, which translates to savings of about $120 each month. If you add up the previous cuts this year, your monthly savings have likely grown to over $300 per month since the Bank of Canada started lowering its policy rate from its peak of 5%.

It’s important to note the difference between two types of variable-rate mortgages: fixed payment variable-rate and adjustable-rate.

Adjustable-rate mortgages: With an adjustable-rate mortgage, both your interest rate and your monthly payment change with fluctuations in the prime rate. This means you’ll see an immediate reduction in your next mortgage payment following today’s rate cut. For a $500,000 mortgage, expect to save about $150 per month after the prime rate falls.

Fixed-payment variable-rate mortgages: With this type of mortgage, your monthly payment stays the same even when interest rates fluctuate. However, the portion of your payment that goes towards interest versus principal will change. With this rate cut, more of your payment will go toward reducing your mortgage principal, meaning you’ll pay off your mortgage slightly faster.

What about fixed-rate mortgages?
For those with fixed-rate mortgages, today’s cut won’t directly impact your current payments since your rate is locked in for the term.

But fixed rates have already seen their own reductions in the past few months. While the trajectory hasn’t been a straight line, lenders have steadily been cutting fixed mortgage rates, coinciding with the steady decline in Government of Canada bond yields, which lead fixed mortgage rate pricing.

While a rise in bond yields earlier this month caused some lenders to start raising fixed mortgage rates, experts think the downward trend will resume.

HELOCs and personal lines of credit
This week’s rate cut isn’t just good news for mortgage holders. If you have a Home Equity Line of Credit (HELOC) or a personal line of credit, you’re in for some savings too.

These products are tied to the prime rate, which usually adjusts in line with the Bank of Canada’s rate changes. As prime rates drop, the interest costs on your line of credit will follow suit, putting more money back in your pocket each month.

What’s next?
Most economists expect the Bank of Canada to keep cutting rates at its final policy meeting in December, and further into 2025.