Why Canada’s Lower Interest Rates Could Be Your Key to Homeownership

For newcomers in Canada, this is an important financial shift. It’s a window of opportunity that could help you purchase your first home sooner. And if the housing market remains sluggish, you may even manage to buy a home at a lower price than you’d expect.

Key Takeaways

• The Bank of Canada just dropped its interest rate to 2.75%.
• This may mean that now is a good time to start looking to buy a home in Canada.
• While these rates are lower now than they have been since 2022, they are still higher than the historic lows we saw between 2015 and April 2022. This means those who are renewing their mortgage soon will have higher rates than they initially signed on for.

What Do Rates Have To Do With Buying a Home?

The Bank of Canada’s interest rate has a direct relationship to the cost of variable mortgages. When the Bank of Canada lowers its benchmark rate, the prime rate offered by banks typically follows suit. Variable mortgage rates are tied to this prime rate, so borrowers on variable terms often see a drop in their monthly mortgage payments.

While fixed mortgage rates are influenced more by bond markets than by the BoC rate directly, a general downward trend in interest rates can still encourage lenders to offer more competitive fixed-rate mortgages.

Long story short: borrowing for your first home may become more affordable as a result of this rate decrease. Now might be a good time for you to buy a home.

For newcomers, this interest rate decrease may mean the difference between just dreaming of owning a home and actually taking the first step toward homeownership. Lower interest rates translate to less interest paid over the life of your mortgage. Because monthly payments are usually smaller, new buyers may find it easier to qualify for a home loan.

Learn more about getting a mortgage in Canada.

Bank of Canada Interest Rate Changes Since 2015

Is Now The Right Time To Buy A Home in Canada?

This is such a personal question. If you’re concerned, you should work with finance and real estate professionals to answer these questions for you based on your unique circumstances.

With that said, there are a few things going on in the economy that you may want to consider before you buy:

• The real estate market is a little sluggish. Sales are slow and it’s a buyer’s market, which means you may get an accepted offer below asking price.
• Coupled with the lowering interest rates, now may be a good time to get a bargain on a home with a more affordable mortgage rate. This may be a brief window.
• Trump’s tariffs may push up the cost of living. It’s estimated that costs for Canadians may increase by $1,900 each year. So, it’s worth considering how home ownership and the tariffs may affect your budget.

You can offset some of the uncertainty with a larger emergency fund. An emergency fund is an account where you store cash (or cash equivalents) to cover costs for emergencies, like job losses and unforeseen home repairs.

Having an emergency fund of 3-6 months can help you to feel more secure in an uncertain economy, especially when buying a new home.

• Learn more about the buying a home vs renting debate.

Interest Rate-Related Considerations To Bear In Mind When Borrowing

Though lower rates make homeownership more attainable, there is a caveat you should keep in mind. Mortgages in Canada, especially variable ones, don’t stay at the same rate forever. That means if you lock in a fixed mortgage now, you’ll enjoy lower monthly payments for a while—but it’s possible you’ll pay more when your mortgage renews if rates climb in the future. (It’s also possible you will get a lower rate, we can’t predict what the rate will be in 2-5 years).

News outlets across Canada have been reporting on homeowners who bought their properties during historically low interest-rate periods over the last few years. Today, these homeowners are seeing rate increases as they reach their renewal dates. While it’s a gentle warning rather than a reason to shy away from buying, it’s worth remembering that what goes down can also come up.

Planning Ahead for Renewals

One of the smartest strategies to safeguard yourself from future rate spikes is to remain prepared for higher payments over the long term.

You can do this by buying less house than you qualify for and by building a financial cushion (an emergency fund). You can also:

• Balance the benefits of investing against making lump sum payments to your mortgage. A lower mortgage balance can mean lower monthly payments if your interest rate increases.
• Maintain a good credit score, since your score can impact the rates you are offered. Our partner Borrowell offers a platform to help you monitor and improve your credit score over time. Check your credit score with Borrowell.
• Pay more towards your mortgage now to ‘practice’ for higher rates (and pay off your mortgage faster). While the terms vary between lenders, most Canadian lenders let you adjust your mortgage payments to pay down your mortgage faster. This might be an increased monthly payment, or accelerated payments. Either way, you can practice paying more for your mortgage.

Making the Most of This Opportunity

Before you jump in, think about your overall financial situation. Review your savings, consider your income stability, and think about the feasibility of making a down payment.

If your numbers line up, this rate environment could be your best chance to secure a loan and a home that fits comfortably within your monthly budget.

If you decide to move forward, there are a few more things on your to-do list. Starting with shopping around for lenders. You’ll want to compare both variable and fixed mortgage rates. Finally, remember that the “sticker rate” isn’t everything—ask about fees, penalties, and prepayment privileges.

• Learn more about our partner Scotiabank.