Bank of Canada Rate Announcement Jan 29th, 2025

Aleks Iankoulov • January 29, 2025

Bank of Canada reduces policy rate by 25 basis points to 3%, announces end of quantitative tightening.


FOR IMMEDIATE RELEASE

Media Relations

Ottawa, Ontario

January 29, 2025


The Bank of Canada today reduced its target for the overnight rate to 3%, with the Bank Rate at 3.25% and the deposit rate at 2.95%.1 The Bank is also announcing its plan to complete the normalization of its balance sheet, ending quantitative tightening. The Bank will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly, in line with growth in the economy.2


Projections in the January Monetary Policy Report (MPR) published today are subject to more-than-usual uncertainty because of the rapidly evolving policy landscape, particularly the threat of trade tariffs by the new administration in the United States. Since the scope and duration of a possible trade conflict are impossible to predict, this MPR provides a baseline forecast in the absence of new tariffs.


In the MPR projection, the global economy is expected to continue growing by about 3% over the next two years. Growth in the United States has been revised up, mainly due to stronger consumption. Growth in the euro area is likely to be subdued as the region copes with competitiveness pressures. In China, recent policy actions are boosting demand and supporting near-term growth, although structural challenges remain. Since October, financial conditions have diverged across countries. US bond yields have risen, supported by strong growth and more persistent inflation. In contrast, yields in Canada are down slightly. The Canadian dollar has depreciated materially against the US dollar, largely reflecting trade uncertainty and broader strength in the US currency. Oil prices have been volatile and in recent weeks have been about $5 higher than was assumed in the October MPR.


In Canada, past cuts to interest rates have started to boost the economy. The recent strengthening in both consumption and housing activity is expected to continue. However, business investment remains weak. The outlook for exports is being supported by new export capacity for oil and gas.


Canada’s labour market remains soft, with the unemployment rate at 6.7% in December. Job growth has strengthened in recent months, after lagging growth in the labour force for more than a year. Wage pressures, which have proven sticky, are showing some signs of easing.


The Bank forecasts GDP growth will strengthen in 2025. However, with slower population growth because of reduced immigration targets, both GDP and potential growth will be more moderate than was expected in October. Following growth of 1.3% in 2024, the Bank now projects GDP will grow by 1.8% in both 2025 and 2026, somewhat higher than potential growth. As a result, excess supply in the economy is gradually absorbed over the projection horizon.


CPI inflation remains close to 2%, with some volatility due to the temporary suspension of the GST/HST on some consumer products. Shelter price inflation is still elevated but it is easing gradually, as expected. A broad range of indicators, including surveys of inflation expectations and the distribution of price changes among components of the CPI, suggests that underlying inflation is close to 2%. The Bank forecasts CPI inflation will be around the 2% target over the next two years.


Setting aside threatened US tariffs, the upside and downside risks around the outlook are reasonably balanced. However, as discussed in the MPR, a protracted trade conflict would most likely lead to weaker GDP and higher prices in Canada.


With inflation around 2% and the economy in excess supply, Governing Council decided to reduce the policy rate a further 25 basis points to 3%. The cumulative reduction in the policy rate since last June is substantial. Lower interest rates are boosting household spending and, in the outlook published today, the economy is expected to strengthen gradually and inflation to stay close to target. However, if broad-based and significant tariffs were imposed, the resilience of Canada’s economy would be tested. We will be following developments closely and assessing the implications for economic activity, inflation and monetary policy in Canada. The Bank is committed to maintaining price stability for Canadians.


Information note


The next scheduled date for announcing the overnight rate target is March 12, 2025. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR on April 16, 2025.


Footnotes

  1. 1. Effective January 30, the deposit rate will be set at 5 basis points below the Bank’s policy interest rate to improve the effectiveness of monetary policy implementation. For more details, see the market notice published simultaneously with this press release.[←]
  2. 2. A market notice published simultaneously with this press release provides operational details.[←]


Read the January 29th, 2025 Monetary Report.


Aleks Iankoulov
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An Overview of the Home Buying Process

By Aleks Iankoulov • April 30, 2025
If you’re in the early stages of planning to buy either your first home or your next home, you’ve come to the right place! Even if you’ve been through it before, the home buying process can be daunting, but it doesn’t have to be when you have the right people on your side! The purpose of this article is to share a high-level view of the home buying process. Obviously, the finer details can be addressed once you’ve submitted an application for pre-approval. But for now, here are some of the answers to general questions you may have as you work through your early preparations. Are you credit-worthy? Having an established credit profile is essential when applying for a mortgage. For your credit to be considered established, you’ll want to have a minimum of two trade lines (credit cards, loans, or lines of credit) with a minimum limit of $2500, reporting for a period of at least two years. From there, you’ll want to make sure that your debt repayment is as close to flawless as possible. Think of it this way: Why would a lender want to lend you money if you don’t have a history of timely repayment on the loans you already have? Making your payments on time, as agreed, is crucial. We all know, however, that mistakes can happen and payments might get missed. If that's the case, it’s best to catch up as quickly as possible! Late payments only register on your credit report if you're past due by 30 days. How will you make your mortgage payments? When providing you with a mortgage, lenders are trusting you with a lot of money. They'll want to feel really good about your ability to pay that money back, over an agreed period of time, with interest. The more stable your employment, the better chances you have of securing mortgage financing. Typically, you’ll want to be employed in a permanent position or have your income averaged over a period of two years. If you’re self-employed, expect to provide a lot more documentation to substantiate your income. How much skin do you have in the game? If you're borrowing money to buy a home, you’re going to have to bring some money to the table. The best down payment comes from accumulating your own funds supported by documents proving a 90-day history in your bank account. Other down payment sources, such as a gift from a family member or proceeds from another property sale, are completely acceptable. In Canada, 5% down is the minimum requirement. However, depending on the purchase price, it might be more. Also, you need to be aware that you will likely have to prove access to at least 1.5% of the purchase price to be allocated for closing costs. How much can you afford? Here’s the thing. What you can afford on paper and what you can afford in real life are often very different amounts. Just because you feel you can afford the proposed mortgage payments, know that you will have to substantiate everything through documentation. The amount you actually qualify to borrow is based on many factors, certainly too many to list in an article designed to provide you with an overview of the home buying process. However, with that said, it’s never too early in the home buying process to seek professional advice. Our services come at no cost to you; it would be our pleasure to help. Working with an independent mortgage professional will allow you to assess your credit-worthiness, provide insight on how a lender will view your income, help you plan for a down payment, and nail down exactly how much you can afford to borrow. And if you need help putting together a plan to improve your financial situation, we can do that too. If you’d like to discuss your financial situation and put together a plan to secure mortgage financing, please get in touch!

GDS/TDS Ratios Explained

By Aleks Iankoulov • April 23, 2025
One of the major qualifiers lenders look at when considering your application for mortgage financing is your debt service ratios. Now, before we get started, if you prefer to have someone walk through these calculations with you, assess your financial situation, and let you know exactly where you stand, let’s connect. There is no use in dusting off the calculator and running the numbers yourself when we can do it for you! However, if you’re someone who likes to know the nitty-gritty of how things work instead of simply accepting that's just the way it is, this article is for you. But be warned, there are a lot of mortgage words and some math ahead; with that out of the way, let’s get started! “Debt servicing” is the measure of your ability to meet all of your financial obligations. There are two ratios that lenders examine to determine whether you can debt service a mortgage. The first is called the “gross debt service” ratio, or GDS, which is the percentage of your monthly household income that covers your housing costs. The second is called the “total debt service” ratio, or TDS, which is the percentage of your monthly household income covering your housing costs and all your other debts. GDS is your income compared to the cost of financing the mortgage, including your proposed mortgage payments (principal and interest), property taxes, and heat (PITH), plus a percentage of your condo fees (if applicable). Here’s how to calculate your GDS. Principal + Interest + Taxes + Heat / Gross Annual Income Your TDS is your income compared to your GDS plus the payments made to service any existing debts. Debts include car loans, line of credit, credit card payments, support payments, student loans, and anywhere else you’re contractually obligated to make payments. Here’s how to calculate your TDS. Principal + Interest + Taxes + Heat + Other Debts / Gross Annual Income With the calculations for those ratios in place, the next step is to understand that each lender has guidelines that outline a maximum GDS/TDS. Exceeding these guidelines will result in your mortgage application being declined, so the lower your GDS/TDS, the better. If you don’t have any outstanding debts, your GDS and TDS will be the same number. This is a good thing! The maximum ratios vary for conventional mortgage financing based on the lender and mortgage product being offered. However, if your mortgage is high ratio and mortgage default insurance is required, the maximum GDS is 39% with a maximum TDS of 44%. So how does this play out in real life? Well, let’s say you’re currently looking to purchase a property with a payment of $1700/mth (PITH), and your total annual household income is $90,000 ($7500/mth). The calculations would be $1700 divided by $7500, which equals 0.227, giving you a gross debt service ratio of 22.7%. A point of clarity here. When calculating the principal and interest portion of the payment, the Government of Canada has instituted a stress test. It requires you to qualify using the government's qualifying rate (which is higher), not the actual contract rate. This is true for both fixed and variable rate mortgages. Now let’s continue with the scenario. Let’s say that in addition to the payments required to service the property, you have a car payment of $300/mth, child support payments of $500/mth, and between your credit cards and line of credit, you’re responsible for another $700/mth. In total, you pay $1500/mth. So when you add in the $1700/mth PITH, you arrive at a total of $3200/mth for all of your financial obligations. $3200 divided by $7500 equals 0.427, giving you a total debt service ratio of 42.7%. Here’s where it gets interesting. Based on your GDS alone, you can easily afford the property. But when you factor in all your other expenses, the TDS exceeds the allowable limit of 42% (for an insured mortgage anyway). So why does this matter? Well, as it stands, you wouldn’t qualify for the mortgage, even though you are likely paying more than $1700/mth in rent. So then, to qualify, it might be as simple as shuffling some of your debt to lower payments. Or maybe you have 10% of the purchase price saved for a downpayment, changing the mortgage structure to 5% down and using the additional 5% to pay out a portion of your debt might be the difference you need to bring it all together. Here’s the thing, as your actual financial situation is most likely different than the one above, working with an independent mortgage professional is the best way to give yourself options. Don’t do this alone. Your best plan is to seek and rely on the advice provided by an experienced independent mortgage professional. While you might secure a handful of mortgages over your lifetime, we do this every day with people just like you. It’s never too early to start the conversation about mortgage qualification. Going over your application and assessing your debt service ratios in detail beforehand gives you the time needed to make the financial moves necessary to put yourself in the best financial position. So if you find yourself questioning what you can afford or if you want to discuss your GDS/TDS ratios to understand the mortgage process a little better, please get in touch. It would be a pleasure to work with you, we can get a preapproval started right away.