03/05/2020 10:29 EST | Updated 03/05/2020 10:33 EST

Canadian Mortgage Rates Are Dropping After BoC's Big Rate Cut

Many major lenders have matched the Bank of Canada's move with a half percentage point drop in their own rates.

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In this file photo, a for sale sign stands in front of a house in Toronto. Mortgage rates are coming down in Canada after the Bank of Canada dropped its key lending rate on Wednesday.

TORONTO ― Several Canadian banks and financial institutions have dropped their prime lending rate by 50 basis points to 3.45 per cent, effective March 5.

The moves by the Royal Bank, Toronto-Dominion Bank, Scotiabank, Bank of Montreal, CIBC and the Desjardins Group match the Bank of Canada’s decision Wednesday to drop its key lending rate by 0.5 percentage points, which was itself a matching of what the U.S. Federal Reserve had cut a day earlier over the novel coronavirus.

The banks’ prime rates determine the interest rate on variable mortgages and home equity lines of credit (HELOCs), among other things. Borrowers of these types of loans will be paying less interest as part of their monthly payments.

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The Bank of Canada said it cut its target for the overnight rate because COVID-19, as the virus is named, was “a material negative shock” to Canada’s already softening economic outlook.

The cut in the bank’s key rate is the first since the summer of 2015 and brings the rate to a level not seen since early 2018, while the bank had not dropped its rate by that much since the financial crisis.

The rate cut will make mortgages and other borrowing cheaper, but has also raised concerns it will further inflame already overheated housing markets. says a homeowner with a five-year, $450,000 mortgage at a 2.6 per cent variable rate amortized over 25 years would save about $115 a month if the mortgage were to drop 0.5 percentage points to 2.1 per cent.

― With a file from HuffPost Canada