The Bank of Canada (BoC) made a big announcement today. It cut its key interest rate target by 25 basis points, bringing it down to 4.25 percent. This is welcome news for homebuyers who have struggled under high mortgage rates in recent months. Inflation, at 2.5 percent, is now at its lowest level since the BoC began its rate-hiking campaign. That is inside the Bank’s 1 to 3 percent control range, though still above its 2 percent target. As a result, the decision signals a shift that could have far-reaching effects on the Canadian housing market.
This post was first published in January 2025. It covers the Bank of Canada’s September 2024 rate announcement, and the figures below are from that time.
What a Cut of 25 Basis Points Means
A basis point is one hundredth of a percentage point. So a cut of 25 basis points lowers the policy rate by a quarter of a percentage point. That may sound small. However, the policy rate shapes the prime rate at the banks, and prime drives the cost of variable-rate mortgages and home equity lines of credit.
In practice, the effect of a rate cut shows up first for people with variable-rate debt. Fixed mortgage rates follow bond markets instead, so they do not always move on the same day. If you want to understand how often these decisions come, see how often the Bank of Canada makes rate announcements.
Relief for Homebuyers
For many Canadians, the recent stretch of rising mortgage rates has been hard. The cost of borrowing rose a great deal. That led to higher monthly payments and, in some cases, put homeownership out of reach for buyers.
Today’s cut of 25 basis points is modest, but it offers some relief. It is also a good sign that the BoC is responding to changing economic conditions. Homebuyers may now find it slightly easier to qualify for a mortgage. Meanwhile, people with variable-rate loans could see their payments go down.
What should you do with this news? First, if your mortgage renews soon, talk to your lender or a mortgage broker early. Compare the terms on offer, not just the rate. Second, if you are saving for a first home, keep building your down payment. A lower rate helps, but a bigger down payment still lowers your monthly cost and your risk.
How 25 Basis Points Could Affect the Housing Market
The Canadian housing market has been cooling in recent months due to high mortgage rates and economic uncertainty. However, this rate cut could spark renewed interest, because lower borrowing costs make homes more affordable. This matters most for first-time buyers, who have felt the higher rates the most.
Also, the hope for further cuts could lift consumer confidence. The BoC keeps watching inflation and economic growth, and more cuts could bring more activity to the housing market. I wrote about the earlier steps in this cycle in my posts on the first cut to 4.75% and the second cut to 4.50%.
A Word of Caution
Still, it is important to approach this optimism with care. The housing market still faces challenges, including high shelter costs and slower economic activity. A drop of 25 basis points does not erase those issues.
Buyers should keep doing their due diligence before entering the market. Talk to real estate professionals and financial advisors, because their advice remains crucial in complex conditions. For example, get a mortgage pre-approval, run your numbers at a higher rate as a stress test, and set a budget that leaves room for closing costs. Sellers should also price with care, since buyers still have choices.
The Path Ahead
As the Bank keeps assessing economic indicators, further rate changes may be on the horizon. For now, homebuyers can take some comfort in today’s cut of 25 basis points. Even so, they should stay mindful of the broader economy.
Rates have moved a great deal since this announcement. For a more recent view of the market, read my fall 2026 guide for GTA buyers. Here in Mississauga and across the GTA, every buyer’s situation is different. A quiet street in Streetsville and a condo near Square One call for very different budgets. So the best plan starts with your own numbers, your timeline and the kind of neighbourhood you want. You can also check the current policy rate and past decisions on the Bank of Canada website.
Talk to a Mississauga Real Estate Agent
Do you have questions about interest rates, mortgages or buying a home in Mississauga, or about buying or selling a home in Mississauga? I am always glad to help. You can send me a message here or call me at 416 908 5600. If this post helped you, a Google review is always welcome. A. Q. Mufti, Sales Representative, RE/MAX Real Estate Centre Inc., Brokerage
Disclaimer: this article was published on 17 January 2025 and reflects the information available at that time. Interest rates, prices, and government programs change, so check the current position before acting on anything here. It is provided for information only and is not financial, mortgage, tax or legal advice. A. Q. Mufti is a registered Sales Representative with RE/MAX Real Estate Centre Inc., Brokerage, Ontario, Canada.
