What to expect for mortgage rates in 2025-2027

What's Next for Rates? Dan's Take

The next Bank of Canada rate decision lands this fall — and Dan's watching the signs that could point to another cut, a hold, or a shift in tone. Here's what he's seeing right now.

Will the Bank of Canada pause or cut interest rates on September 17?

The Bank of Canada’s (BoC's) policy rate  — also called the overnight rate — affects bank prime rates, which in turn move variable mortgage rates. Fixed mortgage rates follow the bond market, which can move to anticipate changes to the prime rate.

It's too soon to call. Market tensions will continue to fly high, and regardless of current market indicators, there are hopes that the Bank of Canada may finally drop its rate again at its next meeting on September 17, especially if inflation manages to hold the line.

Everyone expected dire consequences when President Trump first threatened U.S. tariffs, and despite some consolation that the worst hasn't yet happened, it doesn't mean damage isn't underway, or won't show up more strongly as the months march by. Especially since the U.S. has just upped tariffs on several countries and some Canadian products, wanting to rule the poker table and pressure Canada to ease its supply-management trade stance (among other potential concessions, like water and mineral access).

The CUSMA (Canada-US-Mexico) trade pact expires in June 2026, and it's possible the trade drama could continue until then.

Here's a sign of that weakening we're all talking about: Canada's July labour report says goodbye to the surprise June jobs gain, with a 41K loss and an unchanged unemployment rate of 6.9%. Another strong month would have likely put the kybosh on a fall rate cut, but this less-than-stellar report puts economic support back on the BoC discussion table.

Despite signs of economic cooling, inflationary pressures are at play that could keep the BoC's policy interest rate paused:

• Tariffs and supply-chain disruptions are (slowly) making their way onto shelves in the form of higher prices
• Consumer spending hasn't cooled enough to ease inflation's pace
• Bond markets are nervous about the increasing government spending and debt on both sides of the border, which can lead to higher interest rates
• Energy costs are rebounding, pushing up business and consumer costs

There are several key readings to come before September's rate date, which should help the central bank decide on a more definitive interest rate path as fall approaches — one that leans hawkish (restrictive rate path to control inflation) or dovish (lowering rates to support economic growth).

Here's how the rate markets are predicting the next Bank of Canada rate decision (courtesy of mortgagelogic.news.ca, Aug. 13, 2025):

• 25 bps cut: 33% market odds
• No change: 67% market odds

*60% is considered the magic number in calling the rate-decision odds

Stay tuned!

Cut, pause, or hike? How the latest economic readings predict where rates may go next.

We break down key factors — such as inflation, jobs, and GDP — and what they currently signal for future rate moves. Get the deeper dive into these factors here

• INFLATION (MOST IMPORTANT FACTOR) – PAUSE
  June's CPI (Canadian Price Index) shows Canada's headline inflation rose to 1.9% (up from 1.7% in May); with energy stripped out, it's still 2.7%, unchanged from last month; core inflation (average of median and trim) also remains stuck at 3.0% — leaving the BoC with little room to cut rates (next reading Aug 19) 
  
  
• LABOUR MARKET – CUT
  Canada's July labour market numbers halved the June jobs gain, with a loss of about 41K jobs, mostly in full-time and private sector work (it's the biggest one-month drop since March 2022); the unemployment rate remains at 6.9% (still high) thanks to lower job-seeker numbers (next reading Sep 5)
  
  
• WAGES – PAUSE
  July's average wage growth inched up to 3.3% from last month's 3.2%, moving in the wrong direction; this factor continues to outpace inflation as trade disruption thwarts expectations of lower inflation on the horizon, which feeds into workers demanding more in wage settlements (next reading Sep 5)
  
  
• ECONOMIC GROWTH – CUT
  May 2025 GDP declined by 0.1% following April's 0.1% decline, which is technically a recession; however, experts are forecasting a gain in June of 0.1% and annualized growth of 0.1% for Q2 2025, which contradicts an original BoC prediction of a 1.5% contraction for the second quarter (June and Q2 2025 reading on Aug 29)
  
  
• BOND YIELD MARKET – PAUSE
  The Canadian 5-year bond yield is holding around 2.9% after U.S. core inflation and a producer price index (PPI) came in higher than expected; despite increasing signs of economic weakness, inflation risks are rising both in Canada and the U.S. due to tariffs and government stimulus

What's the most important economic factor the Bank of Canada considers? The BoC's sole job is to control inflation. It uses its policy interest rate (which directly influences bank prime rates) to keep inflation close to its 2.0% target, within a range of 1.0% to 3.0%.

Other key economic factors can help the BoC determine the path of inflation, whether it's likely to rise or fall.

For example, rising unemployment and slow GDP growth may call for a rate cut to stimulate the economy. However, rising inflation could suggest the need to pause or raise rates to cool demand and keep inflation in check.

What economists expect for BoC Rates (2025-2027)

While Dan's outlook is shaped by experience and client feedback and decision points in addition to real-time trends, he also closely watches the forecasts of several economists:

• National Bank expects the BoC rate to drop by 0.50% to 2.25% by the end of 2025
• TD Economics expects the BoC to gradually cut its policy rate to the estimated neutral of 2.25% by mid‑2025, with rates holding around that level into 2027 as economic growth remains subdued
• Scotiabank now forecasts the BoC will hold the key rate at 2.75% for the rest of 2025, then ease by 0.75 % in 2026, bringing it to about 2.0%, while warning that tariff‑related uncertainty may delay or reset this path
• CIBC Head Economist Benajim Tal expects the BoC policy rate will be lowered to 2.5% or 2.25% by the end of 2025 or early 2026, holding at 2.25% into 2027
• Recent market-based forecasts expect the BoC rate to remain at 2.75% into early 2026, edging down to 2.50% by end‑2026, and then holding at 2.50% through at least 2027

As you can see, these rate predictions reflect some uncertainty driven by U.S.-induced market turmoil — but for now, they don't diverge widely.

How far could rates fall? Dan's deeper take. 

Trade uncertainty could push rates lower — or keep them higher.

Sound confusing? That's the sound of opposing economic forces, and why forecasting interest rates this year is a riskier business than usual.

Today, the prime rate sits around 4.95%, based on the current 2.75% BoC policy rate.

Before tariffs hit the headlines, I expected a resting Bank of Canada rate of 2.50% by the end of 2025, with a bank prime rate settling around 4.70% (a typical spread we often see when markets stabilize).

Since the introduction of U.S. tariffs, trade and policy disruptions have thrown interest rate forecasts around wildly. American tariffs alone are projected to cost Canadians and businesses billions, with signs already indicating a broad economic slowdown, nudging sentiment towards rate cuts.

At the same time, multiple inflationary stresses have come into play, helped along by still-sufficient consumer spending.

The problem with trying to forecast the future of rates is that everyone expected dire results immediately with the introduction of U.S. tariffs. However, Trump's multiple pullbacks and mind-changing tactics eased those pressures enough in the short term. We all know how long economic reality can take to show itself in full force — just think of the time it took for rapidly higher interest rates to cool hot inflation.

Until we see firmer expectations of a U.S. trade deal (or lack thereof) and more evident signs of slowing growth, weaker spending, and rising unemployment, the Bank of Canada is likely to hold rates steady to keep tariff and demand-induced inflation in check.

Dan's rate prediction for the rest of 2025.

When tariffs suddenly appeared, predictions suggested that the BoC might need another 2 to 5 cuts (0.25% each), possibly bringing the policy rate down to 1.5% and prime to 4.45% or lower. Those predictions could still come true.

But for now, higher inflation and a still-resilient economy could delay or erase those rate-cut expectations in the near term.

If the Canadian economy continues to demonstrate sluggish growth and inflation eases slightly, we'll likely see at least one more BoC rate cut this year, returning to my original forecast of a BoC policy rate of 2.50% by year's end.

We’ll know more once the next round of economic readings are in and we see whether a U.S. trade deal manages to take shape, offering some clarity to bank on.

What is the current 'neutral' rate?

The BoC had indicated (before tariffs) that its neutral rate, a point at which the economy is neither stimulated nor repressed, is pegged at around 2.75. However, rates likely need to go lower to stimulate an economy dragged down by trade turmoil.

Is there a danger that the prime rate could increase?

There's always the danger that bank prime rates (led by the BoC policy rate) could increase to counter inflation, although the economic softening underway as a result of tariffs makes it unlikely for this year.

What about fixed mortgage rates?

Note that bond yields, which inform fixed rates, will be pushed and pulled by a mix of forces. In the short term, political and economic volatility is likely to push yields and fixed rates up, as they respond to inflationary and global instability. If another interest rate cut is anticipated for 2025, look for a decline in yields and fixed rates.

Fixed mortgage rates will experience fluctuation between interest rate announcements. Read the fixed rate section and see forecasts for 2025 to 2027.

Let's dive deeper into the latest economic numbers.

Why is Canada’s inflation still high in June 2025?

Canada's headline inflation in June rose to 1.9%, up from 1.7% in May, still below the Bank of Canada's 2.0% target. But that lower reading is mainly due to the removal of the federal carbon tax.

Inflation's pace measures current increases against the same month a year ago, so 'base year' effects can skew the comparisons. The carbon tax removal is a good example. Last year, this tax resulted in price increases. This year, with the tax removed, the comparison makes prices look lower than they actually are. Also affected in this latest report are higher gasoline and durable goods prices (such as passenger vehicles and furniture).

Stripping out the volatile energy component reveals that inflation remained stuck at 2.7%. Core inflation — the average of median and trimmed measures — is also holding at 3.0%, right at the top of the Bank of Canada's target range.

What does June's inflation report mean for an interest cut this summer? The numbers suggest there's little room for the BoC to lower its police rate right now, despite growing calls from Canadians hoping for budget relief.

The Bank of Montreal chief economist, Douglas Porter, pointed to the murkiness underlying the headline rate: "core is just too sticky. And our measure of the breadth of inflation showed no improvement in the latest month."

There's ongoing debate as to whether economic cooling could help keep inflation in check as the weeks march on, and whether a possible Canada-U.S. trade deal might ease some of the pricing pressure ahead.

Is Canada’s labour market weakening in mid-2025?

While Canada's June labour market saw a significant 83,000 jobs created, July's report halved that gain with a jobs loss of 41,000, the largest monthly drop since March 2022. The unemployment rate, however, remained at 6.9% due to a corresponding drop in job seekers.

The weaker July print is led by full-time job losses in the private sector, with youth and students shouldering an outsized share of the loss yet again.

That was fast. June's surprisingly positive labour report seems to be a summer anomaly that disappeared as quickly as it appeared.

Another recent labour report shows underlying weakness.

According to notes from the National Bank, another employment report (Survey of Employment, Payrolls and Hours, conducted among businesses) points to widespread weakness developing in the private sector, with "only 39% of the 251 sectors in Canada reported an increase in employment over the past six months." A corresponding reduction in wage growth expectations came in at 3.1%, much closer to the Bank of Canada's inflation target range of 1-3%, and suggests lower inflation somewhere on the horizon.

These July labour numbers work in favour of a Bank of Canada rate cut this fall, assuming a weakening trend continues for August 2025 — that labour report is scheduled before the BoC rate date of September 17.

How are trade tensions affecting Canada’s economic growth in 2025?

In 2024, Canadian GDP grew by more than expected, with a revised annualized pace of 2.6% (real GDP Q4 growth was 0.4%, quarter-over-quarter).

So far this year, growth forecasts have sailed into stronger trade-related headwinds. Q1 2025 saw an unexpected GDP gain of 0.4%, matching the increase in Q4 2024, likely due to consumers and businesses attempting to get ahead of the trade war. Q2 2025, however, may eke out 0.1% annualized growth.

Hello, technical recession — a decline is on the books for April and May 2025.

A technical recession is two side-by-side monthly contractions:

• April 2025 GDP contracted by 0.1%, dragged down by sectors most affected by the ongoing U.S. trade turmoil, as well as oil production interruption from wildfires
• May 2025 GDP also contracted by 0.1%, led by retail and auto sales declines (expectations were for a 0.2% drop)

However, some economists project June and Q2 2025 real GDP results to produce meagre growth of about 0.1%, and annualized GDP growth (a growth rate averaged over a year) to also come out around 0.1% for the quarter.

If that GDP prediction does happen, it's better than the BoC's expected contraction of 1.5% for Q2 — we'll see which side wins bragging rights on its forecast.

Will the lacklustre GDP outputs be enough to sway the Bank of Canada to cut interest rates again this fall? They might, if inflation pressures ease from slowing consumer demand.

How is economic volatility affecting Canada’s housing market in 2025?

National housing sales increased in June 2025, with listings decreasing slightly. Home prices remained relatively flat — though

Will lowering interest rates (and new mortgage rules favouring younger buyers) encourage some buyers out this spring despite the trade-induced economic turmoil? Perhaps not, if financial concerns override the spring feeling of looking for a new home — or if home prices rise from a lack of inventory.

How is the U.S. economy influencing Canada’s interest rate outlook?

Like it or not, our countries' economies are closely linked.

With a Trump presidency, here are some current concerns:

• U.S. trade policies are causing supply and demand shocks, resulting in increased inflation in both countries
• HIgher U.S. tariffs on Canadian imports (and Canada's expected retaliations) could devastate our economy (Canada does about 75% of its export business with the U.S.) and eventually un-complicate the BoC's rate cut decisions with an outsized need to spur the economy
• Immigration issues between the two countries may further diminish our labour productivity
• The U.S. dollar is decreasing due to its trade stance, pushing up the Canadian dollar (disinflationary), but also indicates a worrying destabilization of world markets
• Interest rate divergence between the two central banks is now at 2.0%, pressuring input prices
• Proposed U.S. taxes (section 899 of the One Big Beautiful Bill Act) on Canadian investments and companies could have a significant impact on our economy
• Investors are fleeing long-term U.S. Treasury bonds, which is pushing yields up and adding to concerns about the U.S. handling its ballooning deficit — current U.S. debt interest payments add up to more than the defence budget 

When will fixed rates drop?

Fixed mortgage rates are steered by the Canadian bond market and (eventually) follow the movements in bond yields up or down. 5-year bond yields are the standard for setting 5-year fixed rates and are the reference in this section and blog.

Market volatility and inflation risks are pressuring yields.

Canada's 5-year bond yield is holding around 2.9% following rising underlying inflation reported in the U.S., with some economists warning that the numbers may be skewed due to recent impairments in reporting. If markets start looking to alternative data sources, rather than the standard U.S. reporting structure, markets may readjust their headings (and not in a good way).

As the world starts to register more economic warning signs due to trade disruption, the war is on between rising inflation and economic cooling here in Canada. Ironically, rising prices may help dampen consumer spending over the next few months, potentially placing a lid on inflationary risks.

Here's the stack of inflationary factors still keeping upward pressure on bond yields:

• Higher U.S. trade tariffs are fueling inflation, which may take months to fully register
• Ballooning U.S. government debt is likely to require stimulus (aka govt bailouts), which the bond market reads as inflationary
• Canada's government spending plans (such as increased defence spending and tariff-affected sector bailouts) are likely to add to federal debt, which may lead to higher personal or business taxes
• U.S. political pressure on the Fed to cut interest rates early could add fuel to the U.S. economy and risk even higher prices

Expect lender fixed-rate specials to pop up or disappear quickly as yield volatility is expected to continue. Lenders are closely monitoring their costs and retaining capital to address the potential for an increase in debt arrears.

Will fixed rates decrease if economic weakening wins out over inflation?

Fixed rates may see fluctuation as markets bounce between inflation fears and economic worries. Currently, 5-year fixed rates are likely to hold, with inflation data top of mind.

If a recession becomes more likely, fixed rates could eventually fall further in anticipation of further prime rate cuts. If inflation risks rise to the top of market concerns, fixed rates could increase again.

Can the U.S. economy affect rate hikes here?

The U.S. economic landscape was looking pretty strong (along with rising inflation), but Trump's tariffs and mass government firings are showing up as underlying cracks.

The fresh U.S. President Trump/billionaire Elon Musk administration has thrown substantial uncertainty into how both economies will fare as 2025 is certain to become a year to remember (or forget).

Why do we care? Economic conditions south of the border can influence factors weighed by our central bank (and drive higher prices or economic detraction here) to affect its rate decisions.

Will Canada see a recession?

Despite the constant, distant calls of the 'recession' loon, it hasn't yet flown into our backyard. However, the recent trade disruption may finally beckon a hasty landing.

With the high-interest-rate environment so quickly imposed on Canadians to tame high inflation post-pandemic, a mild recession had been expected through the first half of 2024, which didn't materialize. Until Trump took office, Canada's growth projections were starting to look up for 2025.

Will market resilience keep our economy out of recessionary territory? Some experts expect a recessionary shock from the trade war. In time, it's hoped that Canadian businesses will adapt.

Canadian initiatives are already underway in an attempt to head off an economic blow — such as reducing inter-provincial trade barriers, reviewing restrictive government regulations that choke our productivity, and unfurling more international trade opportunities.

Before the trade disruption, our labour market and economic growth were showing signs of strength, yet household budgets are still straining under the higher prices all around.

A recession would bring mortgage rates down faster.

If economic weakening accelerates, the BoC would likely drop prime rates faster (assuming that job losses and spending pull back would place downward pressure on inflation's pace), providing more budget relief when we'll likely need it most.

Is stagflation a possible economic outcome?

Stagflation, an entrenched state of high inflation coupled with a weak economy and high unemployment, is on everyone's radar. The conditions for stagflation don't currently exist, as our inflation pace isn't high enough, having come down to around 2% from over 8%, and our unemployment rate is still within the 6's range.

Those conditions could change if cost-push inflation (artificially higher consumer prices due to tariffs instead of high demand) soars, the economy weakens, and declining interest rates don't spur enough (or fast enough) rebound spending.

Is mortgage activity picking up in 2025?

Home affordability has improved slightly in 2025 due to lower interest rates and cooling home prices in some Canadian centres.

There was anticipation of a spring housing rush as prime rates eased off — however, as the trade war continues, many home buyers are still holding off on their purchases amid economic uncertainty and as higher inflation attempts to stage a comeback.

Sellers are waiting as well, though some are starting to list as patience wears thin. The result is overall less demand and higher housing inventories than in past years. Buyers with sufficient financial resources or those relocating will still seek homes and may find deals on both mortgage rates and home prices in areas where market competition remains subdued.

Read more in our Housing Market Forecast 2025-2027

With over 1M renewals coming up in 2025, a recent Equifax report shows that over 28% of homeowners are making the switch to a better deal, a rise of about 46% compared to a year ago (according to a Mortgage Professionals Canada survey).

Dan's mortgage rate advice for 2025?

Let us shop for your best rate and mortgage.

Whether rates are falling or rising, your best rate and mortgage can help you better afford your home. Many Canadians are still very unaware that they don't have to stick to their bank for a mortgage, for a purchase, renewal or refinance.

• Shop around. You don't have to get a mortgage with your bank — doing so may result in paying a higher rate.
• Use an expert broker, preferably a highly trained, salaried, non-commissioned True North broker. You'll get expert, unbiased advice (in your preferred language) from a broker who only does mortgages.
• Hold your rate. Hold or lock in your rate with us to protect your budget from rate increases while you make home-buying or mortgage decisions.

First-time home buyers, especially, need expert advice to set them on a path to successful homeownership amid all these price pressures.

Fixed-rate choices are trending again as prime rates are paused — but a variable rate may still offer savings.

Variable rates are staying put for now, though lender discounts may vary.

Many of our clients are back to choosing a 5-year fixed rate (about 40% compared to 20% for a variable-rate choice), opting for rate and payment stability amid the trade volatility.

You may still want to consider a variable rate, which may currently be lower than a fixed rate, depending on your application details. A variable-rate mortgage offers more flexibility for watching the market — and you can switch penalty-free to a fixed rate if you get nervous about where rates may be headed.

Want more time to see what rates will do? Consider locking into a shorter fixed rate — such as our low short-term fixed Rate Relief™ product. If this product is right for you, it can help you bridge the gap with budget relief now while allowing time to pass before deciding on a longer commitment.

Owning a home is a tremendous source of pride in Canada. I created True North to provide clients with a better mortgage experience and save them thousands with their best rate and mortgage choice.

Have questions about your mortgage or pre-approval? Give us a shout, anywhere you are in Canada. We have your best rate, expert advice and unbeatable service — with over 16,000 5-star reviews from our happy clients.