What happened?
The Bank of Canada cut its key interest rate to 2.25% on October 29, 2025, a move aimed at supporting the Canadian economy amid various economic challenges. We’re going to take a look at what this could mean for Canadians, particularly in terms of borrowing costs and financial planning.
Variable rate mortgages and loans
For those with variable rate mortgages, the rate cut will mean that more of your monthly mortgage payments will go towards the principal and less towards interest which could potentially reduce your total payment. This could provide additional financial flexibility and help ease the burden of high housing costs. Similarly, those with variable rate loans, such as lines of credit, may see a decrease in their interest rates, making it less expensive to borrow and pay off debt.
If you have a fixed rate mortgage, the immediate impact of the rate cut will be minimal. Fixed rates are typically tied to five-year bond yields, which are not directly affected by the Bank of Canada’s key interest rate. So those with fixed rate mortgages probably won’t see a change in their monthly payments in the short term.
Lower borrowing costs
The rate cut is expected to make borrowing less expensive overall. This can benefit members who are looking to take out new loans or refinance existing ones. Lower interest rates can reduce the cost of car loans, personal loans, and other forms of credit, making it more affordable to finance major purchases or consolidate debt.
Savings and investments
While lower interest rates can be good news for borrowers, they may have a mixed impact on savers and investors. Savings accounts may offer lower returns, which can affect the growth of savings and retirement funds. However, the rate cut could also boost the stock market and real estate sector, providing opportunities for investment growth.
Good to know
You might see people talking about ‘basis points’, or BPS, in relation to the rate cut. People use basis points to talk about changes in the interest rates of banks or other financial institutions. One basis point equals 1/100th of 1%, so when we talk about the Bank of Canada dropping the interest rate by 25 basis points, we mean it has dropped by 0.25%