Bank of Canada’s January rate cut fuels housing market, but potential impact of Trump tariffs remains unknown

The Bank of Canada cut its key interest rate by 25 basis points (0.25%) to three percent on January 29, just ahead of the imposition of tariffs (the implementation date has been delayed for 30 days – Mortgagelegko.com) by the United States.

TD Bank Chief Economist Beata Caranci told Bloomberg that housing is one of the “most sensitive areas” to changes in borrowing costs.

“Our mortgage market is structured so that we react quickly when rates go up. It becomes more burdensome for households relatively quickly, much sooner than what you see in the U.S.,” she said.

“Similarly, when rates go down, we benefit more quickly from those rate cuts in terms of reducing debt loads and debt servicing costs, and allowing buyers to enter the housing market sooner.”

Caranci added that housing makes up a larger share of Canada’s economy than other countries. Given the current trade tensions with the U.S., she noted that any recovery in the housing market would benefit Canada’s economy, despite the potential negative impact of Trump’s tariffs.

“So in this particular case, the timing of the housing market and consumer spending recovery… It’s a good time to help counter some of the negative impacts, so I don’t think the Bank of Canada would criticize the large impact of the housing market at this point,” Caranci said.

Royal LePage President and CEO Phil Soper also said the latest rate cut will improve the borrowing power of homebuyers.

“The January cut came just ahead of the spring housing market — when demand typically picks up — which should spur buying and selling activity in the weeks ahead. However, looming concerns about potential tariffs are a source of uncertainty for both the central bank and consumers,” the Royal LePage director said.

Regardless of the impact on the housing market, the latest rate cuts are good news for those with variable or adjustable-rate mortgages.

They will see an immediate reduction in their monthly payments, providing some relief from the rising cost of living. It also frees up some cash that can be used for other financial goals, such as paying off more expensive debt or increasing savings.

Those who currently have adjustable-rate mortgages will see their monthly payment go down if they have an adjustable payment, or the interest portion of the payment will go down if they have a fixed payment schedule.

Lower rates will also benefit those with home equity lines of credit (HELOCs) or unsecured lines of credit.

For every 0.25% rate cut, a homeowner with a variable mortgage and payments can expect to pay about $14 less per month for every $100,000 owed on a mortgage. Also, for every $100,000 owed on a HELOC, the savings will be about $20 per month.

The Bank of Canada’s next meeting is on March 12.