Prince Edward Island homeowners with variable-rate mortgages, as well as people shopping for a home, have cause for celebration after the biggest Bank of Canada rate cut since March 2020.Â
Mary Jane Webster, a realtor at ReMax Charlottetown, said Wednesday’s overnight lending rate decrease to 3.75 per cent is a “continued step in the right direction.” She predicted more people will feel like entering the marketplace as it continues to drop.
“It certainly has stalled the market when the interest rates were higher,” Webster said. “So the intent is hopefully to trigger activity.”
Bank of Canada governor Tiff Macklem said Wednesday that further rate cuts can be expected if the lower interest rate helps the economy pick up.
By Wednesday afternoon, TD Bank, Scotiabank, BMO, CIBC, RBC and National Bank had all announced that they had lowered their prime rates by 50 basis points, from 6.45 per cent to 5.95 per cent.
Webster said the development will benefit Islanders with a variable mortgage rate, meaning what they pay is tied to what the central bank does and will change “for better or worse” as a result.
Now that prime rates have dropped, people with that kind of mortgage can either pay less every month, or keep their payment the same and pay down their mortgage more quickly. By contrast, people with fixed-rate mortgages will not see any change to their payments or amortization periods until their term is up and they renew at the new rate.
Bank of Canada senior deputy governor Carolyn Rogers says recent years saw many prices shift upward, something Canadians will feel even as inflation slows: ‘Life’s more expensive now than it was two years ago.’
“A lot of people took a variable rate during the pandemic, and so when the interest rates continued to climb, a lot of those homeowners felt really pinched,” Webster said.
“So this will offer a bit of relief, and then people will be able to take a little bit more time to make an educated decision on what they want to do.”
Provincial market won’t be as affected
Tim Jackson, president of the P.E.I. Real Estate Association, said the interest rate cut is great, but it’s a “slow-moving process.”
He said the province’s housing market is currently a balanced market, which means the number of homes for sale is about the same as the number of people who are trying to buy a property. Because of that, Jackson said changing rates won’t play as big a role. Â
“Right now we’re still seeing prices are holding strong and sellers are still receiving good value for their home,” he said.
“The interest rate [cut] is great for buyers that are…Â obtaining lending, or say someone that’s moving up from one home to another. It’s just making that affordability from a payment that much more feasible for them.”
Is now the time to buy?
Now that rates have dropped, Webster said the challenge for homebuyers is deciding whether now is the time to enter the housing market, as opposed to holding out for the next Bank of Canada interest rate adjustments.
Webster and Jackson both said buyers should enter the housing market now, with Webster adding that people should lock into a fixed mortgage rate to take advantage of the lower interest rate.
“If you find the home that more or less you can afford, act on it now,” Jackson said. “It’s better to act when you can, rather than hope that the rates will make a reduction.”
