Over the last two months, the Bank of Canada has made two consecutive 0.25% cuts, trimming the overnight rate by a total of 0.50%.
That directly affects variable-rate mortgages and home equity lines of credit (HELOCs), while fixed rates are influenced more by the bond market (which often moves in anticipation of BoC decisions).
Example: $1,000,000 Property with an $800,000 Mortgage (30‑year amortization)
We’ll compare two common “half‑point drop” scenarios:
- Fixed Rate: 4.50% → 4.00%
- Variable Rate: 4.00% → 3.50%
Quick reference — payment per $100,000 (30 years):
- 4.50%: ~$506.69/mo
- 4.00%: ~$477.42/mo
- 3.50%: ~$449.04/mo
Difference per 0.50% drop: about $29/month per $100K
Difference per 0.25% cut: about $14/month per $100K
What that means on an $800,000 mortgage
- At 4.50%: about $4,053/month
- At 4.00%: about $3,819/month
→ Savings vs. 4.50%: ~$234/month (≈ $2,810/year)
- At 3.50%: about $3,592/month
→ Savings vs. 4.00%: ~$227/month (≈ $2,724/year)
Bottom line: Two 0.25% cuts (a total of 0.50%) translate to ~$230/month less on an $800K mortgage — whether you’re dropping from 4.50%→4.00% (fixed context) or 4.00%→3.50% (variable context).
Hidden Bonus: More of Each Payment Goes to Principal
Lower rates don’t just reduce the monthly bill — they also shift more of your payment from interest to principal. Here’s the first‑month breakdown on an $800,000 mortgage (30 years):
- 4.50%: payment ~$4,053 → ~$3,000 interest + ~$1,053 principal
- 4.00%: payment ~$3,819 → ~$2,667 interest + ~$1,153 principal
→ That’s ~$99 more to principal vs. 4.50%
- 3.50%: payment ~$3,592 → ~$2,333 interest + ~$1,259 principal
→ That’s ~$106 more to principal vs. 4.00% (or ~$206 more vs. 4.50%)
In plain English: after the cuts, you’re building equity faster and paying less each month.
What It Means for Buyers Entering the Market Now
Two back‑to‑back cuts materially improve affordability:
- More buying power / lower payment:
The same $1,000,000 purchase with an $800,000 mortgage costs about $4,053/mo at 4.50% versus $3,592/mo at 3.50% — roughly $461/month less on a 30‑year amortization. That’s real breathing room for your budget and lender qualifying ratios.
- Easier stress test:
Because the qualifying rate is typically your contract rate + 2%, a lower contract rate helps you pass the stress test with the same income and debts.
- Faster equity build:
From day one, more of each payment goes to principal than it would have at higher rates.
If you were on the edge earlier this year, the combination of lower payments and friendlier qualifying could bring your target home within reach.
What About Lines of Credit (HELOCs & Personal LOCs)?
HELOCs and most personal variable‑rate lines are tied to prime, which typically moves in lockstep with the BoC’s overnight rate. After two 0.25% cuts (0.50% total):
- The prime rate is generally ~0.50% lower.
- If your HELOC was priced at prime + 0.50%, its all‑in rate also falls by ~0.50%.
Simple savings math (interest‑only products):
- Every $100,000 carried on a line of credit saves about $41.67/month per 0.50% drop.
- On $250,000, that’s roughly $104/month (≈ $1,250/year).
And because LOCs are interest‑only, these savings show up immediately in the minimum payment.
Fixed vs. Variable — How to Think About It in 2025
- Fixed‑rate mortgages: Payment certainty for 1–5 years; you capture savings at renewal/refinance.
- Variable‑rate mortgages & HELOCs: Payments/interest adjust as cuts happen, so relief is immediate.
- Many Canadians are choosing shorter‑term fixed (1–3 years) to stay flexible while rates trend lower.
Current lending data points to fixed still leading (≈60–65%), with variable gaining as confidence in further easing improves.
The Bottom Line –
- Expect about $230/month (~$2,700/year) in savings for each 0.50% rate drop on an $800K mortgage.
- For every $100K borrowed, think ~$29/month less per 0.50% drop (or ~$14/month per 0.25% cut).
- More of every payment now hits principal, accelerating equity.
- Lines of credit get instant relief: ~$41.67/month per $100K for a 0.50% drop.
In short, rate cuts don’t just help with cash flow — they speed up ownership.
Final Thoughts –
Whether you’re renewing, refinancing, or buying, now’s a smart time to re‑run your numbers. A half‑point can free up thousands per year and meaningfully accelerate your path to owning your home outright.