Bank of Canada Rate Decisions 2024: The Pivot Year

After eleven months of holding the overnight rate at 5.00%, the Bank of Canada began cutting on June 5, 2024, and continued through the rest of the year. Five reductions over seven months brought the overnight rate from 5.00% to 3.25%, including two larger 50-basis-point moves in October and December.21 Analysts estimated that about $251 billion in Canadian mortgages came up for renewal in 2024.16 For many of those borrowers, the cuts arrived in time to soften, though not eliminate, a higher renewal payment.

The Five Cuts: From 5.00% to 3.25%

The easing cycle began cautiously and accelerated as the year progressed. The Bank held the overnight rate at 5.00% through its January, March, and April announcements, waiting for clearer evidence that inflation was sustainably heading toward the 2% target. When it finally moved in June, the pace of cuts increased steadily.43

The October and December 50-basis-point cuts were larger than anything else in the 2024 easing cycle. The Bank's 2022 hikes had themselves been much larger: 50-basis-point moves in April, June, October and December, a 75-basis-point move in September, and a 100-basis-point move in July as the Bank moved quickly to contain inflation.171813192021 By 2023, the pace had slowed to 25-basis-point steps. Returning to 50-basis-point cuts in late 2024 signaled that the Bank saw the economy slowing faster than expected and judged that a still-restrictive rate was doing more harm than necessary now that inflation had come under control.65

By November, CPI had eased to 1.9%, down from 2.0% in October and from the 8.1% peak in mid-2022.14 The Bank's inflation mandate was effectively satisfied. The remaining question was how quickly to ease back toward a neutral rate.

How Mortgage Rates Responded

Variable-rate mortgage holders saw immediate relief with each cut. Prime rate dropped from approximately 7.20% in January to 5.45% by year-end, and variable mortgage rates fell in lockstep. A borrower who was paying 6.70% on a variable mortgage at the start of the year was paying around 4.95% by December, a reduction that translated into real monthly savings on a typical Ontario mortgage.

Fixed rates followed a different trajectory. Five-year fixed rates had already begun falling in late 2023 as bond yields declined. Through 2024, fixed rates continued to drift lower, though the movement was more gradual than the variable-rate drops. By December 2024, 5-year fixed rates were well below where they started the year.

Regulatory Changes: Insured Cap and Amortizations

Beyond rate cuts, 2024 brought significant regulatory changes aimed at improving affordability, in force as of December 15, 2024:129

• Insured mortgage cap raised to $1.5 million: Previously set at $1 million, this increase meant that buyers with less than 20% down payment could now purchase homes up to $1.5 million with CMHC insurance. In Ontario markets like the GTA, where the average home price well exceeds $1 million, this opened high-ratio lending to a much larger segment of buyers.117
• 30-year amortizations for first-time buyers and buyers of new builds: Previously limited to 25 years on insured mortgages, eligible buyers can now spread payments over 30 years. On a $500,000 mortgage at 5%, this reduces the monthly payment by roughly $240 compared with a 25-year amortization.
• Stress test removed for mortgage switches: As of November 21, 2024, uninsured borrowers switching federally regulated lenders at renewal no longer face a stress-test requalification, and under the strengthened Canadian Mortgage Charter, insured borrowers can switch lenders at renewal without a new stress test. This removed a barrier that had trapped some borrowers with their existing lender's less competitive renewal offer.

These changes did not lower mortgage rates directly, but they expanded access and reduced monthly payment burdens, particularly for buyers entering the market for the first time.

The 2024 Renewal Wave

The defining story of 2024 was renewals. Big-bank executives put monthly payment increases for borrowers renewing mortgages taken out at pandemic-era low rates at roughly $400 to $500.16 The rate cuts helped soften the blow: a borrower renewing in December 2024 faced a better rate environment than one who renewed in January, but the increases were still significant for most.

National average home prices recovered modestly through the year, according to CREA.10 The housing market appeared to be emerging from its correction, though price growth remained much more moderate than the pandemic-era run-up.

Mortgage arrears, which had stayed near record lows throughout the hike cycle, were edging higher by late 2024, though the Bank of Canada noted they remained near historically low levels.15 The slow creep in arrears signalled that some borrowers were reaching their limits.

What the Cuts Mean for an Ontario Borrower

Illustrative example: the figures below are rounded estimates for a hypothetical borrower, not a quote and not a current Good Home Capital offer. OAC. Rates subject to change. Conditions apply.

Consider a hypothetical homeowner in Brampton who locked into a 5-year fixed rate of 1.89% in early 2020 on a $550,000 mortgage with a 25-year amortization. Their monthly payment has been approximately $2,300. Their term is up in early 2025, with an estimated remaining balance of approximately $460,000.

In January 2024, before any cuts, a typical 5-year fixed renewal rate was around 5.50%. On the same balance and amortization, this homeowner's new payment would have been roughly $2,810, an increase of about $510 per month from their pandemic-era payment.

By December 2024, after the five cuts and a decline in bond yields, a typical 5-year fixed rate was closer to 4.49%. On the same balance and amortization, the renewal payment works out to approximately $2,540, still a roughly $240 monthly increase from the pandemic rate, but about $265 per month less than it would have been in January. Over a five-year term, that difference in timing is worth roughly $15,900.

For variable-rate borrowers, the 175 basis points of cuts were felt more directly. Using this article's own prime-rate figures, a borrower at 6.70% variable in January would have been at approximately 4.95% by December, saving roughly $520 per month on a $500,000 mortgage with a 25-year amortization.

Looking Ahead to 2025

With the overnight rate at 3.25% and inflation near 2%, the natural question is whether cuts will continue. Most economists expect they will, though the pace is debated. The Bank has brought the rate down 175 basis points in seven months, a relatively rapid easing. At some point, it will approach its estimate of the neutral rate and may slow or pause.

Our advice to Ontario borrowers this year came down to one thing: take advantage of the current environment without assuming it will get dramatically better. The rate cuts in 2024 were real, and they have meaningfully improved the mortgage market. Variable rates are trending lower. The renewal shock, while still present, is less severe than it would have been a year ago.

Several factors could influence the pace of cuts in 2025. Global trade tensions, commodity price volatility, and the trajectory of the U.S. economy all play into the Bank's decision-making. A weaker Canadian economy could prompt faster cuts. An unexpected inflation rebound could slow them. The Bank has emphasized data-dependence, and after being surprised by inflation's persistence in 2023, it is unlikely to commit to a predetermined path.

For borrowers, the practical takeaway is that the direction of rates is favorable, but the destination is uncertain. Locking in a competitive fixed rate now secures a rate that is historically reasonable. Staying variable offers the potential for further savings if cuts continue. A broker can help you model both paths for your specific mortgage and determine which approach aligns with your risk tolerance and financial plan.