Rate Update: Why Today’s Cut Could Shift the Market
September 17, 2025
October 29, 2025
Prime Rate: 4.45% | Overnight Rate: 2.25%
Highlights
- Prime down 0.25% — lowest since July 2022
- Inflation cooling toward 2.5%
- Borrower confidence returning as rate cuts sharpen lender pricing
Halloween treats came early for us adults with Governor Tiff Macklem dropping the prime rate by 0.25% today. For those with a Homeowner Line of Credit, that translates into a decrease of about $21 per $100k owing.
The odds of today’s rate drop were 50/50, given the recent inflation figures coming in close to 3%. Economists, being who they are, however, decided to whip out a different yardstick to measure the recent inflation data and decided that we are closer to 2.5%. Given it’s led to a rate drop, I’ll hold back on my usual economist joke.
What’s Driving the Cut
The Bank cited slower growth at home and abroad, with Canada’s economy contracting 1.6% in Q2 and expected to grow only 1.2% this year.
U.S. trade tensions have created real drag on Canadian exports, particularly in autos, steel, aluminum, and lumber, while the labour market remains soft with unemployment steady at 7.1%.
Inflation, however, is finally behaving. The Bank’s preferred core measures remain sticky around 3%, but broader indicators now show underlying inflation trending closer to 2½%. That gives the Bank just enough breathing room to help the economy through what it called a “period of structural adjustment.”
What This Means for Borrowers
This is the eighth rate cut since January, and while we may see one more in December, the Bank has now entered what it considers neutral territory, meaning policy is no longer pushing or pulling the economy. Translation: we’re nearing the bottom of this rate cycle.
For variable-rate mortgage holders, today’s move brings another small but welcome drop in payments. For anyone sitting on the fence about buying, the combination of softening home prices and the lowest prime rate since July 2022 could signal a sweet spot to enter the housing market or take another step up the property ladder.
The Bigger Picture
The U.S. Federal Reserve followed suit today with its own quarter-point cut and signalled that more easing could be on the way, a move that may help stabilize bond yields and support further declines in fixed mortgage rates heading into year-end. With the federal budget coming out next week, there is potential for another round of government spending which could boost consumer confidence.
My Take
While global trade tensions still dominate headlines, the fog is starting to lift. Markets are adjusting, inflation is cooling, and lenders are feeling more confident about pricing mortgages more competitively.
The sweet spot in the fixed mortgage segement is still the three year given the pricing, flexiblity and its more lenient penalty calculation. That may change now that we are starting to see more rate specials come from lenders on the 5 year fixed mortgage product.
When it comes to variable rate mortgages, we still aren’t convinced they are the best option at this point in time. We are however starting to see the risk/reward ratio looking more favourable than before. In our experience you need at least a discount of prime minus 0.75% , resulting in a net rate that is 0.5% below the equiavlent 5 year fixed before you are being compensated for the risk you are taking on.
Overall we’re starting to see a downward trend in fixed and variable rates, not just temporary blips. That’s creating real door opening opportunities for qualifying buyers and those considering a move up to take advantage of today’s market conditions.
Our final piece of advice based on having gone through the 2008 to 2010 markets: the real money in real estate is made during uncertainty. The clearer things get, the more expensive they become.
In short, confidence is returning — slowly but surely.
If you’ve been waiting for a clearer signal, this may be it.
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The next Bank of Canada meeting is December 10th, 2025
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