Several of the last Bank of Canada announcements have revealed a slow decrease in prime interest rates since June of last year. This has left many Canadians wondering what impact the rate drop could have on their mortgage. Whether you’re a new homeowner or looking to adjust your current mortgage, understanding the effects of a lowered prime rate is key to making the best decision for your financial situation. Here’s a breakdown of what this change could mean for your mortgage, and possible actions you can take.
What is the prime rate and how does it impact mortgage rates?
The prime rate is the interest rate that banks use to set the rates on variable-rate loans and mortgages. When the prime rate changes, the interest rate on these loans usually change too. And when the prime rate goes down, that means that more of your monthly payment ends up going towards your principal balance and less goes towards interest. In turn, this helps you pay down your mortgage balance faster.
For those with fixed-rate mortgages, the prime rate doesn’t directly affect you until it’s time for you to renew your mortgage. However, if you’re looking to take advantage of lower rates, now could be a great time to explore your renewing or refinancing options.
What to consider with your Coast Capital mortgages?
If you have a variable-rate mortgage, you have a few important things to consider when the prime rate decreases. Unlike some variable-rate mortgages that automatically adjust your monthly payments with changes in the prime rate, Coast Capital’s variable-rate mortgages don’t adjust payments immediately when the prime rate moves up or down—unless the changes cause you to hit your “trigger rate.”
If my payments aren’t adjusted automatically—do I need to take any action?
If you’re a Coast Capital variable-rate mortgage holder, we recommend leaving your payments as-is when prime interest rates drop. As we mentioned earlier, lower prime rates mean less of your monthly payments go towards interest, and more goes towards your principal. And that means you get the benefit of pay down the balance of your mortgage faster.
However, if having more access to cash is a growing concern for you, there is an option for you to reduce your monthly payments temporarily to free up room more wiggle room in your budget. Although it’s important to remember that if you take this route, you will end up paying less of your principal off with each payment and potentially paying more interest over the duraction of your mortgage. We recommend connecting with a Mortgage Advisor to see if this is the best way for you to free up access to cash, or if there are other ways forward that allow you to take advantage of lower prime rates.
For members with fixed-rate mortgages, now might be a good time to explore whether refinancing makes sense for you—especially if your current rate is higher than today’s rates. Refinancing can help you secure a lower interest rate, which can reduce your monthly payments and save you money over the lifetime of your mortgage. And if you’re unsure, don’t hesitate to reach out to a Mortgage Advisor.
The bottom line
Lowered prime rates can create opportunities for Coast Capital members with both variable and fixed-rate mortgages. Whether you’re looking to save on interest, adjust your payments, or refinance your mortgage, Coast Capital is here to help you understand your options and find a path forward that makes the most sense for you. Connect with a Mortgage Advisor online or over the phone at 1.888.517.7000, and we can help you put a plan in place that makes the most sense for you and your financial situation.
