What the Recent Bank of Canada Rate Drop Means for Your Mortgage Renewal

Image courtesy of Global News

If your mortgage is up for renewal soon, the recent decision by the Bank of Canada to lower its overnight rate from 2.75% to 2.5% could be an excellent opportunity to save money.

With around 60% of Canadian mortgages set to mature in 2025 and 2026, many homeowners will be facing renewal decisions—and understanding how this rate cut affects you is key.

What Does the Rate Cut Mean for Your Mortgage?

The Bank of Canada’s benchmark rate influences the interest rates lenders offer. Variable-rate mortgages typically track the central bank’s rates, so as the Bank lowers rates, variable rates tend to go down too. On the other hand, fixed rates are influenced by bond market activity and don’t shift immediately with the central bank.

If you have a variable-rate mortgage or are thinking about switching, this rate cut has made variable rates more attractive. Some lenders have already dropped variable rates by up to 30 basis points, with options now under 4% at various online lenders and brokerages. This means you could save on your monthly payments if you choose a variable rate.

Should You Lock in a Rate Now or Wait?

If you’re considering a variable mortgage but uncertain whether the Bank of Canada will cut rates further later this year, there’s a way to plan ahead. Some lenders offer a rate hold for up to 120 days, allowing you to lock in today’s lower rates while waiting to see if rates drop more.

However, a word of caution: variable rates come with some risk. While rates might stay low for a while, experts warn that eventually, the Bank of Canada will need to raise rates again. If you’re not comfortable with payment fluctuations, a fixed-rate mortgage might be a better fit, offering steady payments and predictability. Fixed rates are widely available below 4% right now.

How Does This Affect Your Renewal Strategy?

Your housing plans matter when choosing between fixed and variable rates. If you’re planning to move within a few years, a variable rate can offer flexibility with generally lower penalties if you break your mortgage early. But if you plan to stay put for the long term—three to five years or more—locking in a fixed rate could provide peace of mind and consistent payments.

It’s smart to start shopping for your renewal at least four months before your current mortgage expires. If your current rate is around 5% or higher, breaking your mortgage early to get a lower rate might save you money overall. Just remember the closer you are to your renewal date, the smaller the penalties for breaking your mortgage could be.

Watch Out for Loyalty Penalties

One costly mistake many homeowners make is renewing with their existing lender without exploring other offers. Studies show that 69% of Canadians stick with their current lender and three-quarters stay with one of the big five banks. Unfortunately, lenders often reserve their best rates for new clients, meaning loyal customers may end up paying more—on average, about $155 extra every month. Over five years, this can add up to nearly $9,300 in extra payments.

Fortunately, switching lenders has become easier since Canada’s banking regulator removed the stress test requirement for mortgage switches where the loan amount and amortization don’t change. If you’re renewing soon, it’s in your best interest to shop around—you might find significantly better rates and terms by considering other lenders.

If your mortgage is coming up for renewal or you want help deciding between fixed and variable rates in today’s environment, I’m here to guide you. Reach out to me, Mr. Mortgage (Kechanth Kannan), and let’s find the best solution for your situation.

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Don’t leave thousands of dollars on the table—explore your options and secure a mortgage that works for you!