2025 Forecast for Mortgage Rates in Canada
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According to recent reports, a significant number of Canadian mortgages (approximately 1.2 million) will be up for renewal in 2025. As many as 85% of these mortgages were secured when rates were at or below 1%. As a result, numerous homeowners may face the challenge of dealing with significantly higher mortgage interest rates during their renewal process.
Key Takeaways
- Predictions from the experts at Canada’s big banks suggest that interest rates could reduce to 2.25% by the end of the year.
- Inflation is the primary factor influencing the Bank of Canada’s monetary policy decisions.
- Choosing a shorter-term fixed or variable-rate mortgage could help borrowers up for renewal or refinancing save when rates start to decline.
Canada’s Mortgage Rate Forecast 2025
According to predictions, the mortgage rate forecast for Canada is further rate reductions as early predictions from most of the Big 6 indicate we could see rates fall to 2.25% or lower by year-end.
Forecasts vary regarding the extent and timing of rate cuts. However, these forecasts are constantly influenced by geopolitical and macroeconomic factors. They are subject to change based on what the Federal Reserve announces for US interest rates and how under control inflation remains in Canada. Additionally, economic uncertainty around tariffs and the potential for a recession in 2025 is challenging many predictions on what the future holds for rates.
| Bank | Policy Rate Q1 | Policy Rate Q2 | Policy Rate Q3 | Policy Rate Q4 |
|---|---|---|---|---|
| BMO | 3.00% | 2.75% | 2.50% | 2.50% |
| CIBC | 2.75% | 2.25% | 2.25% | 2.25% |
| National Bank | 2.75% | 2.50% | 2.25% | 2.25% |
| RBC | 2.75% | 2.25% | 2.00% | 2.00% |
| Scotiabank | 2.75% | 2.75% | 2.75% | 2.75% |
| TD | 2.75% | 2.25% | 2.25% | 2.25% |
Factors Influencing the Bank of Canada’s Future Interest Rate Decisions
Inflation
Inflation is the primary factor influencing the Bank of Canada’s rate decisions. The inflation target is set at 2%, and the BoC will adjust the policy rate to manage inflation and bring it to within this target.
When inflation exceeds this target, the BoC raises the policy rate. This causes lenders to change their prime rates, increasing them for loans and mortgages, directly impacting borrowing and spending. This strategy aims to curb inflation and return it to the desired target of 2%.
The BoC will lower the policy rate when inflation is lower than this target. When this happens, lenders will change their prime rates, reducing them for loans and mortgages. This strategy aims to boost the economy by encouraging borrowing and spending.
Employment Data
For the BoC to maintain the inflation target of 2%, the economy must operate at its maximum sustainable level. This indicates that the economy is running at peak productivity and can sustain itself without increasing inflation.
Many will struggle to find employment and experience declining income and savings when employment falls below the maximum sustainable level. This impacts spending behaviours, potentially leading to inflation falling below 2%.
When employment rises above the maximum sustainable level, employers face difficulties finding workers to meet demand, which increases prices and wages, potentially leading to inflation rising above 2%
Striking the right balance between inflation and employment is challenging, as both factors are evaluated based on data from the previous month rather than real-time information.
The United States Economy
The economy in the United States and decisions made by the Federal Reserve (The Fed) impact the decisions made by the Bank of Canada. Since our economies are closely linked, Canada typically follows decisions made by the Federal Reserve to keep the Canadian dollar from devaluing against the US dollar.
Ways to Save Money on Your Mortgage When Interest Rates Are High
While previous interest rate increases are being realized, consumer demand will continue to be impacted. As this demand decreases, rates are expected to decline, and your individual circumstances will determine what strategy to use to save money while rates are high.
In Canada, a significant amount of mortgages will be up for renewal within the next few years. As a result, individuals who are coming up for renewal should anticipate potential payment shock. This could limit household budgets significantly depending on interest rates at the time of renewal.
Fixed-Rate Mortgages to Mitigate Interest Rate Risk
The traditional belief is that you should choose a fixed-rate mortgage when interest rates start to increase. However, considering that inflation is a lagging measure and bond yields are a predictive factor, it may be more appropriate to wait before locking in a mortgage rate.
It’s advisable to position yourself to benefit from lower rates. Monetary policy measures typically take 18 to 24 months to impact inflation. As inflation has reached the 2% target, interest rates could hold steady. However, with the high unemployment rate and trade risks adding more uncertainty to the economy, we may see the BoC reduce the policy rate further to cushion our economy amid fears of a recession. Opting for a shorter-term fixed-rate mortgage could provide stability and predictability in mortgage payments while you wait for rates to fall.
Variable-Rate Mortgages for Minimizing Interest Rate Exposure
If you can adjust your budget to account for potential fluctuations in interest rates, consider going for an adjustable-rate mortgage (ARM) to take advantage of lower rates.
If you are a well-qualified borrower, renew your mortgage into an adjustable-rate mortgage (ARM) instead of a variable-rate mortgage (VRM) during a decreasing rate cycle if you are comfortable with risk. By doing so, you can benefit from potential decreases in mortgage payments over time as the ARM adjusts immediately based on changes in the lender’s prime rate.
Predictions for Mortgage Rates 2026-2027
Foreseeing the direction of interest rates over the next few years is nearly impossible. There is a chronic lack of housing in Canada, which will continue to drive shelter inflation. In the next few years, more households will feel the impact of higher interest rates, specifically those who secured mortgages with ultra-low rates.
Some big banks have forecasted their predictions for 2026, giving us insight into where interest rates may be heading for those coming up for renewal. Additionally, the Bank of Canada market participants survey quarterly forecast provides insights on where we may expect interest rates further into the future, with expectations for 2026 and 2027.
| Bank | Q1 2026 Policy Rate | Q2 2026 Policy Rate | Q3 2026 Policy Rate | Q4 2026 Policy Rate |
|---|---|---|---|---|
| BMO | 2.50% | 2.50% | 2.50% | 2.50% |
| CIBC | 2.25% | 2.25% | 2.25% | 2.25% |
| National Bank | – | – | – | 2.75% |
| RBC | – | – | – | – |
| Scotiabank | 2.75% | 2.75% | 2.75% | 2.75% |
| TD | 2.25% | 2.25% | 2.25% | 2.25% |
| Policy Interest Rate (based on median response) | |
|---|---|
| Q1 2026 | 2.50% |
| Q2 2026 | 2.50% |
| Q3 2026 | 2.50% |
| Q4 2026 | 2.50% |
| Q1 2027 | 2.75% |
Tips for Finding the Best Mortgage Deals on Your Renewal or Refinance
If your mortgage is due to renew in the next few years, choosing a new rate that aligns with your financial objectives will be a top concern, as many mortgages coming up for renewal currently have low interest rates. If you plan to switch lenders for a more competitive rate, your decision may be influenced by your ability to meet stress test qualification criteria.
Depending on where rates are at the time of renewal, you may opt for a shorter fixed-term or variable-rate mortgage in anticipation of rates falling further in the near future. We suggest an open discussion with a mortgage specialist to determine the most appropriate choice for your situation.
Borrowers who are close to renewal or looking to refinance have the opportunity to benefit from a mix of fixed and variable options. For example, you could secure a portion of your mortgage at a fixed rate while taking the remaining balance at a variable rate to combine savings potential.
A hybrid approach can potentially decrease your total risk outlook and allow you to take advantage of potential decreases in interest rates. This would be most advantageous if the variable mortgage portion is an adjustable-rate mortgage (ARM). One challenge in utilizing this choice is that financial institutions that provide hybrid mortgages typically do not offer competitive rates compared to other lenders.
If interest rates remain unchanged and the outlook for rates to decrease changes, assessing the overall risk between choosing fixed and variable options is advisable. For individuals who have considerable home equity, net worth, and available cash flow, selecting an adjustable-rate (ARM) may be suitable. For first-time homebuyers (FTHB), it’s best to opt for a fixed rate to avoid significant increases in monthly mortgage payments should interest rates stay higher for longer or change course and increase again.
Frequently Asked Questions
Could we see a decrease in mortgage interest rates in 2025?
Most experts suggest that interest rates will decrease this year. However, there will be a balancing act between not lowering them too much to avoid inflation and raising home prices and lowering them enough to keep the economy strong to help us weather a possible recession.
What can we expect in terms of interest rate increases within the next 5 years in Canada?
While it’s hard to predict where interest rates may go, especially so far into the future, most experts predict they will decrease in the next few years. Interest rate expectations suggest that rates will decline rather than increase.
What will happen to my mortgage payment if it’s up for renewal in 2025?
If your mortgage is up for renewal this year, you likely have a lower interest rate than what lenders offer today. You should anticipate your mortgage payments to double or, in some cases, even triple unless rates fall significantly before your renewal this year.
Final Thoughts
Mortgage rates will continue to fluctuate, so the most important factor isn’t the rate itself but rather the portion of your disposable income that will be used to fulfill your mortgage obligations. As you navigate higher interest rates than we have seen over the past few years, you should aim for consistent and manageable mortgage payments that align with your budget and long-term financial goals.
If your mortgage is coming up for renewal or you’re looking to refinance, contact us today for advice on making the best mortgage rate decision.
