So The Bank of Canada Dropped Rates, What Does This Mean For Me?

Luisa Hough • January 22, 2015

The announcement yesterday from the Bank of Canada that it lowered the target overnight rate to 3/4 per cent has been called the most significant rate announcement in the last 10 years. So the obvious next questions are…

How does this rate change affect me? How does this rate change impact my ability to buy a new home? Do I have increased purchasing power now?

Well… let’s work this through.

Bank of Canada

The Bank of Canada sets what is called the “overnight rate” which has more to do with how banks borrow money among themselves than it does have a direct impact on consumers. However, according to the Bank of Canada website ,

“Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages.”

So basically the overnight rate can influence the prime lending rate, but it doesn’t have to… the banks decide that for themselves and subsequently for us.

The prime rate (currently 3%) is what Variable Rate Mortgages are based on. A typical variable rate mortgage will have a component plus or minus to prime. So if the prime rate is 3% and the component is -.5%, your contract rate would be 2.5%.  When the lender changes the prime rate, your rate goes up or down accordingly.

The confusion is a result of a lot of people believing the overnight rate is the prime rate. The over night rate is currently 0.75% whereas the prime rate is still 3%. As of right now, there has been no changes to mortgage rates as a result of the Bank of Canada announcement.

Will Rates Go Down?

Typically the prime lending rate does go down when the Bank of Canada lowers the overnight rate. However this is up to the banks to decide. The banks could decide not to pass along this decrease in their expenses to consumers and just hang on to the profitability. TD bank is already on record as saying they will not be lowering their prime rate in response to this latest Bank of Canada move.

“TD Bank said Thursday it had decided not to cut its prime rate, a decision that “was carefully considered and is based on a number of factors, with the Bank of Canada’s overnight rate only being one of them.” Royal Bank of Canada said it is “considering the impact” of the central bank’s rate cut, but is not changing its mortgage products at this time. Scotiabank told CBC News it had not yet made a decision on whether to cut its prime rate.”

“Our decision regarding our prime rate is impacted by factors beyond just the Bank of Canada’s overnight rate,” said Mohammed Nakhooda, a spokesman for TD Bank. ” Not only do we operate in a competitive environment, but our prime rate is influenced by the broader economic environment, and its impact on credit.”

It is still to be seen what all lenders will do, they are no doubt taking their time to consider all options (while they make more money in the short term).

Variable Rates

Even if all the lenders across the board do decide to lower their prime rate to 2.75%, this will have an impact on current variable rate holders and it will not increase the purchasing power of anyone purchasing a property and securing the mortgage with a variable rate. This is because:

To qualify for a variable rate mortgage, you qualify at the benchmark rate, instead of the contract rate.

The benchmark rate is currently 4.79%, so in order to qualify for the variable rate (which is currently in the mid to low 2% range), you have to be able to afford to qualify at the higher rate. These rules are in place so that when the variable rate mortgage renews in 5 years… there is no significant shock in payment increase if the lending landscape is drastically different.

Fixed Rates

Now, with the recent drop in oil prices, the Canadian dollar falling and the bond market taking a dive as a result of the Bank of Canada rate change, many are predicting that fixed rates will be going down as well.

Unlike the variable rate a 5 year fixed rate is qualified on the contract rate not the benchmark rate. So if the 5 year fixed rate does goes down it will actually increase the purchasing power of a homebuyer.

So, to answer the question directly, will this rate decrease impact the purchasing power of the average homebuyer. No it will not.

There will be less interest paid by variable rate holders but someone purchasing a property with a variable rate will not have any more purchasing power. While someone purchasing a property with a 5 year fixed rate will qualify for more, their rate is in no way tied to prime and they won’t see any savings from the lower rate (if it does go down).

It is good to note that the cost of borrowing money to purchase a home in Canada has never been this cheap. Any extra money paid towards principal will have a huge impact. It would seem that rather than try to use these low rates to purchase a more expensive house, the best plan of action would be to use these low rates to pay off your mortgage more quickly.

But as everyone’s situation is different, it’s hard to give general advice. I would love to talk with you about your situation and help you figure out the best mortgage product for you!

Recent Posts

Why a Mortgage Pre-Approval Protects Both Your Head and Your Heart

By Luisa & Candice Mortgages • April 22, 2026
Why a Mortgage Pre-Approval Protects Both Your Head and Your Heart There’s no denying it—buying a home is an emotional journey. In a competitive market, it can feel like you need to stretch beyond your comfort zone or bid above asking just to have a chance. That pressure can make it hard to separate what you want from what you can realistically afford. One of the biggest pitfalls buyers face is falling in love with a home that’s outside their price range. Once that happens, every other property seems like a compromise—even the ones that might have been a perfect fit otherwise. The best way to avoid this heartache? Get pre-approved before you start shopping. What a Pre-Approval Does for You A mortgage pre-approval gives you more than just a number—it provides clarity, confidence, and protection: Know your buying power : Shop within your true price range and avoid disappointment. Spot potential roadblocks : Uncover issues like credit bureau errors before you make an offer. Get organized : Learn exactly what documentation you’ll need so there are no surprises. Lock in a rate : Many lenders hold your rate for 30–120 days, giving you peace of mind if rates rise. Save yourself heartache : Protect yourself from falling for a home you can’t afford. Head vs. Heart Buying a home is about balance. Your head tells you what’s financially sound, your heart tells you what feels right—and both matter. A pre-approval helps bring those two sides together, so you can make confident choices without emotional stress clouding your judgment. The Bottom Line Looking at properties for fun is one thing—but if you’re serious about buying, a pre-approval is the smartest first step you can take. It sets realistic expectations, saves time, and protects your emotions along the way. If you’d like to explore your options and get pre-approved, I’d be happy to walk through the process with you. Let’s make sure you’re ready to shop with confidence.

Breaking Down the Real Costs of Homeownership

By Luisa & Candice Mortgages • April 15, 2026
Don’t Forget About Closing Costs When planning to buy a home, most people focus on saving for the down payment. But the truth is, that’s only part of the equation. To actually finalize the purchase, you’ll also need to budget for closing costs —the out-of-pocket expenses that come up before you get the keys. Closing costs can add up quickly, which is why they should be part of your pre-approval conversation right from the start. Lenders will even require proof that you’ve got enough funds set aside. For example, if you’re getting an insured (high-ratio) mortgage, you’ll need at least 1.5% of the purchase price available in addition to your down payment. That means a 10% down payment actually requires 11.5% of the purchase price in cash to make everything work. Let’s break down some of the most common expenses you should prepare for: 1. Home Inspection & Appraisal Inspection : Paid by you, this gives peace of mind that the property is in good shape and doesn’t have hidden problems. Appraisal : Required by the lender to confirm value. Sometimes this is covered by mortgage insurance, sometimes by you. 2. Legal Fees A lawyer or notary is required to handle the title transfer and make sure the mortgage is properly registered. Legal fees are often one of the larger closing costs—unless you’re also responsible for property transfer tax. 3. Taxes Many provinces charge a property or land transfer tax based on the home’s purchase price. These fees can range from hundreds to thousands of dollars, so you’ll want to factor them in early. 4. Insurance Property insurance is mandatory—lenders won’t release funds without proof that the home is insured on closing day. Optional coverage like mortgage life, disability, or critical illness insurance may also be worth considering depending on your financial plan. 5. Moving Costs Whether you’re renting a truck, hiring movers, or bribing friends with pizza and gas money, moving comes with expenses. Cross-country moves especially can be surprisingly pricey. 6. Utilities & Deposits Setting up new services (electricity, water, internet) can involve connection fees or deposits, particularly if you don’t already have a payment history with the utility provider. Plan Ahead, Stress Less This list covers the big-ticket items, but every purchase is unique. That’s why it pays to have an accurate estimate of your personal closing costs before you make an offer. If you’d like help planning ahead—or want a breakdown tailored to your situation—let’s connect. I’d be happy to walk you through the numbers and make sure you’re fully prepared.

How Your Loans and Spending Habits Are Quietly Shaping Your Credit Score

By Luisa & Candice Mortgages • April 10, 2026
Your credit score is one of the most important numbers in your financial life — especially when it comes to getting a mortgage. But for most Canadians, how that number actually gets calculated remains a bit of a mystery.

Luisa & Candice Mortgages 

Contact Me Anytime!

The best way to get ahold of me is to submit through the contact form below. However feel free to give me a shout on the phone as well.

Contact Us