Mortgage Rate Forecast Canada 2025 – 2026
The next Bank of Canada interest rate announcement is on:
April 16, 2025
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The decisions Canadians make on their mortgage in 2025 largely depend on the mortgage rate forecast. It’s a decision that will affect homeowners for several years to come and could lead to thousands of dollars in mortgage interest savings.
Here, we will look at where mortgage rates are likely headed, based on a current review of economics, years of in-depth mortgage market study, and working with thousands of mortgage files.
Bookmark this page to see how the 2025-2026 interest rate conversation evolves.
These 4 main predictions will be reviewed:
- Historical Context: Mortgage rates will likely gravitate lower over the long term towards a historical trend in the mid-high 3% range.
- The market consensus on the mortgage interest rate forecast in Canada is for the Central Bank to cut by 0.25% at its April 2025 meeting.
- 0.50% of additional Interest Rate Cuts in 2025 and how a US Tariff war could change this.
- How to position yourself with the best mortgage rate in 2025 to save the most on your mortgage.
Historical context: Mortgage rates in Canada are forecasted to gravitate towards historical lows for the long term of 5 – 10 years
To help determine mortgage rate forecast, one of the best perspectives we have available is a historical one.
During the great recession of 2008, the financial system and economy as a whole required bailouts and stimulus as never before seen, just to keep running. Thankfully the stimulus did its job and the economy rebounded and got back on track. However, between 2008 – 2019, for over 10 years, there was very low or stagnant GDP growth and interest rates remained low accordingly.
During the covid pandemic, in 2020 – 2022, we witnessed a similar massive economic bailout. This time the stimulus was far greater, with over 40% of dollars ever created between 2020 – 2022.
However, in part due to a literal shutdown of the economy and of supply chains, combined with massive government stimulus and excess consumer demand from pandemic savings, there was much more inflation as the economy stabilized.
High inflation, peaking at 8.1% in 2022, led the Bank of Canada to increase interest rates at an unprecedented rate of 20x, from 0.25% to 5% in just over 1 year. This did the job and today inflation is under control.
However it remains that historically, when a massive new government and private debt are layered upon already massive debt, this can perpetuate dependence on yet ever cheaper debt to stimulate the economy long term. High debts can lead to long term economic stagnation and, importantly, to a ‘magnified effect’ of interest rates.
Specifically, with 6 times more debt in the economy today, adjusted to inflation, than in the 1980s and early 90s interest costs have approximately 6 times more effect on the economy.
So when rates are even slightly restrictive it can have a significantly negative impact on the economy.
We saw proof of this in 2023 – 2024, as Central Bank rates at 5% (lowest mortgage rates around 6%) materially slowed the Canadian economy. Even today’s rates in the high 3% range continue to drag on the economy, as lower fixed mortgage rates renew higher. If mortgage rates remained in the 6% range the Canadian economy would likely be in a major recession today.
As the economy takes on more debt as a whole, the need for lower rates to sustain economic growth only increases.
Accordingly, there is significant long term pressure for rates to remain lower.
Today the ‘neutral rate‘ or ‘target rate’ at the Central Bank of Canada, which is the rate seen as neither repressing nor stimulating the economy, is between 2.25% – 3.25%. As of March 2025, financial markets expect 0.50% further Central Bank rate cuts (2.75% current down to 2.25%), and this infers fixed and variable rates to stabilize in the mid-high 3% range.
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As of March 15, the market consensus on the mortgage rate forecast in Canada is for the Central Bank to cut by 0.25% at its April 16, 2025 meeting
The main tool we have when reading the current mortgage rate market is the Government of Canada Bond Yield. The Canadian bond is a government debt security that pays a return to an investor. The ‘%’ based return to the investor is called the ‘yield’ and is considered one of the safest investments because the Government would have to go bankrupt for it not to pay its investors.
The Government of Canada 5 year Bond Yield factors in all known economic data on a day to day, and even a minute to minute basis. Simply put – when the market/ bond traders think that the Central Bank of Canada will increase rates, the Bond Yield increases. When the Bond market thinks the Central Bank rate will decrease, then the yield drops. In other words, the Bond yield trades or is priced in anticipation of where the Central Bank of Canada rates will move. The Central Bank of Canada makes its rate decisions based on how it sees the economy performing.
Currently, as of March 15, 2025, as seen in the Yield chart below, the Canadian Bonds are pricing in:
- 80% chance for a 0.25% Bank of Canada rate cut on April 16
- 20% chance of a 0.50% cut
- 1 additional 0.25% cut through the remainder of 2025.
Given the following economic key data, it appears that the economy is cooling enough to justify further rate cuts in 2025:
- December/ Year end GDP/ economic growth: 2.6% annualized growth; however still negative Per Capita GDP growth for the Fourth Quarter 2024
- February Labour/jobs market: Unemployment held steady at 6.6%, however job gains were expected
- January CPI/ Inflation: 1.9%
Economic slowdown, lower inflation and lower Bond Yields. What does this mean for interest rates through 2025-2026?
*1 Month Bond Yield View*
*1 Year Bond Yield View*
0.50% Additional Interest Rate Cuts in 2025, bringing the Bank of Canada Overnight rate to 2.25% and the Commercial Bank Prime Rate to 4.45%
Here we look at the most important economic forces and trends that affect mortgage interest rate predictions in Canada in 2025.
We focus on current financial market data because this is the most reliable information to base our forecast on, and more specifically, what data says about mortgage rates for the next year.
This page is updated weekly to reflect any changes in the data.
The Effects of US Tariffs on Canadian Interest Rates
The effects of US tariffs and Canadian counter tariffs are front and centre, and will have a major impact on determining the interest rate path for Canada.
The net effect of tariffs will be lower rates according to the economist consensus, the Bank of Canada and the direction of financial markets. Here’s a quote from National Bank of Canada that summarizes the likely outcome of interest rates given 25% tariffs.
“It is our assessment that regardless of fiscal stimulus efforts, the threat to the Canadian economy would be sufficiently large to warrant loose(r) monetary policy under almost all reasonable scenarios.”
If tariffs are enforced at 25%, the Bank of Canada would cut rates by as much as 1.5%, according to economists, including the potential for emergency cuts ahead of the scheduled meetings.
This would bring down variable rates immediately, and fixed rates would likely decrease too, given lower bond yields.
Hopefully, it doesn’t come to this because 1.5% of further rate cuts would mean a very weak Canadian economy. If only the projected rate cuts of 0.50 to year’s end are required, the economy would be less recessionary.
The other potential effect is that the lower the rate in the short term, the higher inflation can be long term. This is due to higher costs of importing goods and effects of counter tariffs. Even with a weak economy and slow consumption, the higher price of goods would pull through to the consumer – regardless of the interest rate.
Indeed, according to the Bank of Canada, lower interest rates help to ‘ease’ the short term effects of tariffs but are not the solution to high tariffs. If inflation crept back up, for example, later in 2026, the Central Bank’s hand would be forced to increase.
Weak Economic Growth in 2025
As of March 2025, the Canadian economy is on the brink of recession.
However, if we look at ‘Real GDP per capita’, or Canada’s economic growth divided by the population size and removing the effects of inflation, Canada is well into a recession (inflation is not real economic growth.
Given the Real GDP per capita measure, there has been over a year and a half of economic decline – Canada has seen no Real GDP growth since March 2014. In other words, that’s over 10 years of economic growth erased.
Especially considering the damaging effects of tariffs, and as importantly, tariff threats and uncertainty, we expect a continuation of low headline GDP growth in 2025, and negative per capita GDP growth.
Mortgage Renewals Slowing the Economy
It is known in economics, and as recently discussed by the Central Bank of Canada, that it takes 12-24 months for a single interest rate hike to ‘trickle through’ or have a full effect on slowing an economy.
While the first small 0.25% interest rate hike in Canada happened in March 2022, as of March 2025, we are still seeing the full effects of the rate hikes of 2022-2023.
As we move into 2025, we will continue to see the restrictive effects of the rate increases. More specifically, as 2% range fixed mortgages renew into high 3%/ low 4% range mortgage rates, this continues to pull discretionary spending out of the economy.
Lower Inflation Expected Throughout 2025
The Bank of Canada stated that it believes there is more room to cut rates, as long as inflation remains close to 2% or lower. This is in line with what the financial markets are currently projecting for interest rate cuts in 2025.
Conclusion and Interest Rate Prediction Calendar
In 2025 and 2026 mortgage rates will not likely normalize at the lowest 2% levels seen during covid.
The expectation is that 2025 – 2026 mortgage rate normalization occurs in the mid-high 3% range.
Fixed rates are mainly affected by bond yields, and bond yields may be sticky in the high 3% range due to the influence of much higher US bond yields/ treasury yields.
However, variable rates are directly affected by the Bank of Canada. With a further 0.50% worth of cuts on the horizon, this puts the Central Bank rate at 2.25% and the average variable rate at 3.7% or slightly lower.
Importantly, if high Tariffs are enforced, we could see low-mid 3% mortgage interest rates.
As of March 2025, the Bank of Canada prime rate/ overnight lending rate is 2.75% and financial markets are forecasting:
| Date | Current Bank of Canada Rate Forecast |
|---|---|
| January 2025 | 3% |
| March 2025 | 2.75% |
| April 2025 | 2.50% |
| June 2025 | 2.25% |
| October 2025 | 2.25% |
| December 2025 | 2.25% |
Fixed and Variable Mortgage Rate Forecast in 2025
| Date | 5 YR Fixed Mortgage Rate Forecast | Variable Mortgage Rate Forecast (Prime – 1%) |
|---|---|---|
| January 2025 | 4% – 4.50% | 4.2% |
| March 2025 | 3.99% | 3.95% |
| April 2025 | 3.89% | 3.7% |
| June 2025 | 3.89% | 3.55% |
| October 2025 | 3.89% | 3.55% |
| December 2025 | 3.99% | 3.55% |
This interest rate data is updated weekly and will change as the economy evolves
This brings us to our discussion on how to position yourself for the best mortgage rate in this environment.
How to position yourself for the best mortgage rate in 2025 to save the most on your mortgage
Given a data based understanding of mortgage interest rate predictions, opportunities and risks, a calculated approach may be considered to position yourself to reduce risk and take advantage of lower mortgage rates.
A Variable Mortgage Interest Rate Strategy
Along with consistent news of Bank of Canada interest rate cuts, the variable rate is getting more attention.
Indeed, based on the economic and financial market data available to us now, we are currently recommending the variable mortgage rate as a way to save on interest in 2025-2026. The variable rate could potentially be locked to a fixed rate at an opportune time/ market dip in fixed rates.
However the variable rate comes with risks, so we typically recommend it to borrowers who understand the risk involved, and who have lower mortgage payments relative to income. The variable rate may not be the best option for some first time home buyers, for example, as they are newer to borrowing and the mortgage payment may be bigger relative to income and equity available.
With the variable rate now typically priced just 0.25% higher than fixed rates, and with 0.50% or perhaps more rate cuts on the horizon in 2025, the variable rate is likely to sink lower than the fixed rate.
How much lower will the variable be than fixed?
Based on current data, the variable rate is likely to settle approximately 0.50% below fixed rates. This could lead to significantly more savings versus fixed rates, especially if the variable rate savings are invested into paying down the mortgage faster.
There is also a chance the Canadian economy falls harder than expected, along with potential global ‘events’ that could result in lower rates sooner. Indeed, every 10 years or so there seems to be an event that causes interest rates to plummet. While we can not count on these negative events, nor are they currently reflected in the data, the variable rate can serve as a hedge against the negative event if it does happen.
On the other hand if inflation makes a comeback, there could eventually be an increase in the variable rate. Although this does not look likely in 2025, 2026 could potentially be different depending on how political and economic realities play out.
Given over 40 years of historical rate data, as seen in a York University study on Canadian interest rates, the variable rate has been shown to save Canadian homeowners more than fixed mortgage rates, about 80% of the time. So as rates drop there is a good chance we are heading into an economic cycle where these historical variable rate savings will happen.
A 3 Year Fixed Mortgage Rate Strategy to Lower Your Rate and Reduce Interest Rate Risk
The 3 year fixed mortgage rate continues to be the most popular mortgage rate in Canada. The main value proposition behind the 3 year fixed rate is that the rate is not too much higher than the 5 year fixed rate (typically 0.10 – 0.20 higher). However if rates are lower in 3 years the mortgage can be renewed into the lower rate at that time, positioning you for savings vs today’s fixed mortgage rates.
We recommend the 3 year fixed rate to those who are looking for more interest rate consistency than variable, but also want an opportunity to renew sooner, or even break the mortgage after 1.5 years if lower rates are available.
However, if the 3 year fixed rate is much more than 0.15% above the 5 year fixed rate, the 3 year fixed may not be a good deal versus the 5 year fixed.
There is some risk with this strategy as it is possible in 3 years time, rates are higher. If government policy or a lower Canadian Dollar causes inflation to increase above 3% per year, we could very well see interest rates rebound back to the high 4% range – or even 5s. So this is a real possibility of renewing into a higher rate, not a lower rate after 3 years.
For this reason, those who are more conservative or have a lower risk tolerance are advised to consider a 5 year fixed rate, especially if the rate is lower.
5 Year Fixed Mortgage Rate Advantages and Disadvantages
As of March 2025, 5 year fixed rates in the high 3% range are approximately 0.25% lower than variable rates in the low 4% range.
Whereas another 0.50% of rate cuts are likely in 2025, as we move into 2025 there is some risk that the cuts don’t proceed by the additional 0.50% as currently projected. Or perhaps the cuts do play out as projected in 2025, bringing the typical variable into the 3.50 – 3.75% range, but then increase in 2026 – 2027 if inflation picks up with a strengthening economy.
So while a 5 year fixed rate may or may not lead to greater interest rate savings vs the variable rate in the short term, it is well positioned in the high 3% range already taking advantage of and pricing in approximately 0.50% of additional Bank of Canada cuts today and for the next 5 years, no matter what ends up happening with inflation during this time.
It can add peace of mind that your payment won’t increase if rate cuts don’t go as planned. It might cost more, but this peace of mind can be priceless for many.
What about a 1 or 2 year fixed interest rate?
Whereas in 2022, 2023 and in early 2024, 1 or 2 year fixed rates were priced as high as 6%, this is not the case anymore. Over that period the recommendation leaned heavily towards 1-3 year fixed rates, with many opting for the shorter term rates. But the economics of mortgage rates have changed, and less value is seen in 1-2 year fixed rates.
More specifically, 1-2 year fixed are typically priced 0.50% – 0.75% higher than 5 year fixed rates. The main reason a borrower would pay more for these shorter term fixed rates, is to renew at a time when rates are lower. However if the Bank of Canada does not cut rates as deeply as currently projected by financial markets/ bond markets, then there will not likely be any savings with these shorter term fixed rates.
On the other hand, if the Bank of Canada cuts by the current projection or more, then you’d be better off with a variable rate in the high 3% range – realizing those savings much sooner. In other words, if you’re counting on lower rates in 1-2 years, you’re also counting on variable rates dropping to less than 4% and holding. So its likely that locking into a higher 1-2 year fixed rate will cost you in the short term vs. a variable rate.
For those looking for the lowest rate and more protection over the next few years, the 3-5 year fixed rate in the high 3% range likely offers more value.
Connect with Altrua Financial for more details, calculations and to see what strategy may be right for you, or check out our other articles on the subject just below:
Major Bank Prime Interest Rates Canada
4.95%
4.95%
4.95%
4.95%
4.95%
Central Bank of Canada Prime Rate
