What to expect for mortgage rates in 2025-2027

What's Next for Rates? Dan's Take

The next Bank of Canada rate decision has landed — 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 October 29?

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.

This year's economic jigsaw puzzle is taking shape: the U.S. trade war dragged Canada's economy down by about 1.5% in the second quarter of 2025. That prompted the BoC to step in with another rate cut in September, despite above-target core inflation — a preferred measure the central bank is reconsidering for future rate decisions.

The backdrop of broader economic deterioration (which now includes the potential impact of a U.S. government shutdown) and recent counter-tariff removals are identified as reasons to expect price pressures to ease in the coming weeks.

An October 29 cut will depend on these factors:

• Inflation shows clear signs of easing
• Economic growth continues to hover on the recessionary line
• The labour market weakens further
• Consumer spending slows
• Bond markets respond more to economic cooling than inflation risks

Dire consequences were envisioned when President Trump first threatened U.S. tariffs. Despite some consolation that the worst hasn't yet happened, it doesn't mean deeper damage isn't underway — or that it won't show up more strongly in the months ahead.

Trade volatility is likely to continue impacting the numbers (as U.S. President Trump recently announced more tariffs). A U.S. government shutdown could be another hit to growth south of the border, with spillover effects that may pull Canada's economy and bond yields lower, raising the odds of another BoC cut.

Only time — and a renegotiated U.S. trade agreement — will tell whether Canada's resilience will hold together in the face of new trade realities.

Here are the inflationary pressures still in play for 2025 rate decisions.

Further rate cuts are highly dependent on the pace of inflation over the next few months. The following concerns may give the central bank pause for the last two rate dates of the year (October 29 and December 10):

• Tariffs and supply-chain disruptions are still impacting prices on the shelf
• This latest rate cut may fuel demand
• Bond yields may trend higher in response to inflationary government spending and debt on both sides of the border
• Rising U.S. inflation could also feed into higher prices
• If gas prices rise this fall, it could quickly alter the inflation picture (not in a good way)
• The Canada Post strike may lead to higher shipping costs being passed to consumers

Will emerging numbers push the BoC to lean hawkish (restrictive rate path to control inflation) or dovish (lowering rates to support economic growth) as year-end approaches?

Here's how rate markets are predicting the Bank of Canada's October 29 decision: 

Courtesy of mortgagelogic.news, October 1, 2025:

• 25 bps cut: 48% market odds
• No change: 52% 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) – CUT
  August's CPI (Canadian Price Index) shows Canada's headline inflation rose to 1.9% (from July's 1.7%) with gas falling less and food costs increasing; inflation is still running at 2.5% with energy stripped out; however, core inflation (average of median and trim) was unchanged at 3.05%, leaving the BoC room to cut its rate (next reading Oct 21)
  
• LABOUR MARKET – CUT
  Canada's August labour market axed another 66K jobs, mostly part-time (and not in the youth sector), pushing the unemployment rate from 6.9% to 7.1% (next reading Oct 10)
  
• WAGES – CUT
  July's average wage growth slowed to 3.2% from last month's 3.3%, moving in the right direction (next reading Oct 10)
  
• ECONOMIC GROWTH – CUT
  July 2025 GDP grew by 0.2%, the first (meagre) growth seen in 4 months, primarily driven by good-producing industry gains (+0.1% was expected; June decreased by 0.1% and Q2 recessed at 0.2%); experts project August to be flat — we're not out of the recessionary woods yet, depending on how Q3 nets out (Aug reading on Oct 31)
  
• BOND YIELD MARKET – PAUSE
  The Canadian 5-year bond yield is still around 2.7%, though showing signs of easing as a U.S. government shutdown threatens a hit to both economies; yields still face inflation risks posed by government spending and increasing deficits, the sudden Canada Post strike, and more tariffs from U.S. President Trump

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 predict for interest rates (2025-2027)

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

• National Bank expects the Bank of Canada rate to drop to 2.25% by the end of 2025
• TD Economics expects the BoC to cut its policy rate to 2.25% by Q4 2025, with rates holding around that level into 2027 as economic growth remains subdued
• Scotiabank now forecasts the BoC will drop its rate to 2.25% by the end of 2025, then raise it to 2.75% by the end of 2026, while warning that tariff‑related uncertainty may delay or reset this path
• CIBC Head Economist Benajim Tal expects the BoC policy rate to decrease to 2.25% by the end of 2025 or early 2026, holding at that level into 2027
• RBC now expects the BoC rate to decrease to 2.25% by the end of 2025, and increase to 2.50% in 2026
• Capital Economics predicts a BoC policy rate down to 1.75% by January 2026, then two rate hikes in 2027 back to 2.25%
• Recent market-based forecasts expect the BoC rate to remain at 2.50% into early 2026, then edge down to 2.25%, and then rise to 2.50% by the end of 2026 and hold through at least 2027

As you can see, these rate predictions reflect some future uncertainty driven by U.S.-induced market turmoil. But for now, they don't diverge widely — especially where rates are thought to go by the end of the year.

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 4.70%, based on the current 2.50% BoC policy rate.

Before tariffs hit the headlines, I had expected rates to reach this resting level by the end of 2025.

Since the introduction of U.S. tariffs, trade and policy disruptions have thrown interest rate forecasts around wildly. 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, aided by resilient 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 keep its decisions tight to inflation's trend, wary of keeping 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 3.70%. Those predictions could still come true.

But for now, inflation risks, despite signs of a slowing economy, could delay or erase further rate-cut expectations in the near term.

If the Canadian economy continues to demonstrate sluggish growth AND inflation eases, we may see at least one more BoC rate cut this year, bringing rates to 2.25% (prime to 4.45%) by year's end. If inflation is sticky, however, the current rate may hold until at least early 2026.

My forecast may change as the economic readings progress. If a U.S. trade deal manages to take shape, it will offer some clarity to bank on.

What is the BoC's current neutral rate range?

The Bank of Canada's published neutral rate range, an estimate on a rate position that neither stimulates nor holds back the economy, is 2.25% to 3.25%.

However, if the economy is showing more weakness than expected, even a rate in the neutral range can feel restrictive, which is why the BoC frames its moves as either supportive or restrictive.

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 August 2025?

For Canada's latest CPI (Consumer Price Index) report, headline inflation in August rose to 1.9% from July's 1.7%, still below the Bank of Canada's 2.0% target. However, the lower reading is primarily due to the removal of the federal carbon tax and the 'base year' effects that make today's gas prices look lower.

Stripping out the volatile energy component, the average of the rest of the CPI baskets remains elevated at 2.5% — groceries and shelter prices fed into this month's price pace.

Core inflation (the average of median and trimmed measures) was unchanged at 3.1%, and the fact that it's still not in the '2s' will make Tiff Mackem, the BoC governor, go 'hmmm.'

Comments from a recent Conference Board of Canada article sum up how the current headline inflation rate isn't a simple gauge of what's going on amid tariff disruption:

"Headline inflation is currently a misleading guide to underlying price pressures. The price of energy in the CPI’s year-over-year calculation will include the removal of the carbon tax until next April. This is keeping the headline inflation figure artificially low.“ – The Conference Board of Canada, August 19, 2025

However, with Canada removing counter-tariffs a few weeks ago, it's believed that some price stresses will be eased. Additionally, if economic cooling results in more consumer pullback, it could help keep tariff inflation to give the BoC more room to post rate cuts this year in support of economic recovery.

Of course, a possible (impossible?) Canada-U.S. trade deal might also throw a wrench into any inflation expectations.

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

Here's the difference a few months make for lagging indicators to start showing economic strain.

Despite a surprisingly upbeat June 2025 job report, Canada's monthly job losses have been mounting since then due to the U.S. trade war, particularly in trade-sensitive sectors like manufacturing and transportation, but now spreading to other industries, such as scientific and technical.

The August labour reading of 66K jobs lost, primarily part-time for the 25-54 year age group, pushed up the unemployment rate to 7.1% from 6.9%, and would have been worse if not for a drop in the participation rate.

There's still room for labour market deterioration, with secondary reports, such as the SEPH (Survey of Employment, Payrolls and Hours, conducted among businesses), pointing 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."

These August job numbers work in favour of at least one Bank of Canada rate cut this fall.

How is Canada's economic growth being affected by trade disruption in 2025?

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

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 U.S. trade war. But the second quarter clearly shows Canada's growth sailing into trade-related headwinds:

• Q2 2025 was a recessionary quarter, with a 0.2% contraction in real GDP
• April, May, and June logged a 0.1% decline
• The result was annualized growth running at -1.6% for Q2, a significant drop from the +2.0% growth recorded for Q1 2025

Hello, recession? Economists aren't raising the alarm, yet.

In July 2025, real GDP grew by 0.2%, exceeding the expected 0.1% growth. August projects a flat GDP, and Q3 may eke out a 0.7% annualized growth pace.

While dodging contraction, those numbers suggest a rather sluggish economic tortoise, not a hare, in the race to pull Canada's economy out of the danger zone (a full-blown recession).

Will consumer strength and government stimulus help shore up numbers as Canada adjusts to a new trade reality, or will the trade weakness spread to other sectors — and more Canadian budgets? The recent Canada Post strike is another obstacle in the way of better economic numbers, especially for small and medium businesses, and poses an additional upside risk to inflation.

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

National housing sales growth continued at a slow pace in August 2025, with some markets showing signs of life, thanks to more listings and relatively flat home prices.

Some buyers and sellers are coming off the sidelines, perhaps out of necessity, or simply because there are more deals available in higher-priced markets, or formerly 'hot' markets, like Calgary, Alberta.

A recent Bank of Canada policy rate cut could spark fall housing activity among Canadians who have been waiting (forever) for the right time to buy, despite financial concerns from the ongoing U.S. trade war. If sellers also flock to list, demand may balance out enough to keep home prices stable.

Read more here: Housing Market Forecast (2025-2027)

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 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 (mostly 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.

Economic weakening is having its say, but inflation risks remain.

Canada's 5-year bond yield is hovering around 2.7%, although easing back due to a U.S. government shutdown that could impact the U.S. economy and create knock-on effects in Canada. Maintaining some upward pressure is the inflationary potential of the new Canada Post strike, continued and additional U.S. tariffs, and government debt forecast to pile up on both sides of the border.

The bond-yield jury is out as to whether the BoC rate will decline again before the year's end. Economic softening and a recession threat are afoot, yet rate and government stimulus may help boost recovery, while keeping inflation from easing enough to warrant lower interest rates.

Watch for yields to be the tell, if they rise in reaction to continuing inflationary risks, or decline on weaker data.

As the world realigns to U.S. trade upheaval, a brewing conflict between rising inflation and economic cooling is unfolding here in Canada. Ironically, rising prices may help dampen consumer spending over the next few months, potentially placing a lid on inflationary pressures.

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

5-year fixed rates have recently declined by around 0.05%. However, expect fixed rates to fluctuate as markets bounce between inflation fears and monetary worries.

If recessionary data starts piling up, fixed rates may eventually fall further if more prime rate cuts are anticipated. If inflation risks once again become the primary market concern, fixed rates may increase again if yields rise.

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

Yes. The U.S. economy matters for Canadian rate decisions.

Why it matters, briefly:

• Trade and prices. Strong U.S. demand and tariffs can change import and export prices here, which feeds into Canada's inflation readings.
• Policy and capital flows. If the Fed tightens while the BoC does not, capital can flow into U.S. assets, moving yields and the loonie, and that can push Canadian inflation up or down.
• Market spillovers. U.S. growth, fiscal moves, or political uncertainty can change global bond yields and risk premiums, and these moves can show up in Canadian fixed mortgage rates.

Bottom line: A hotter U.S. economy, or U.S. Fed policy rate tightening, tends to push Canadian yields and rates up, while a U.S. slowdown can make it easier for the Bank of Canada to cut its benchmark interest rate.

Will Canada see a recession?

Currently, Canada is one quarter closer to a 'technical' recession due to the ongoing U.S. trade war's impact on Canadian exports and business sentiment. Whether this downturn turns into a long, protracted period of negative growth is yet to be determined.

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 bring Canada out of recessionary territory? Many experts expected a recessionary shock from the trade war. In time, it's hoped that Canadian businesses will adapt, and consumers will have enough financial resilience to weather the trade storm.

Keep in mind that a recession can hit Canadians the hardest in the sectors most affected by trade disruption – and whether the country is skirting the line between contraction and growth won't matter to them if they've lost their job.

To counteract the trade chaos, Canadian initiatives are already underway to mitigate an economic blow — including reducing inter-provincial trade barriers, reviewing restrictive government regulations that hinder productivity, and expanding international trade opportunities.

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 low-7% 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.

An expected national spring rush didn't materialize. The summer months, however, saw a pickup in activity, with more buyers coming out amid increased inventory and balanced markets in many Canadian centres.

The recent Bank of Canada rate cut appears to have sparked renewed interest — we observed a significant boost in mortgage inquiries following the September 2025 rate announcement.

After months of waiting for clarity on the U.S. trade disruption and its impact on interest rates, the rate drop likely spurred some Canadians to act, chasing mortgage-rate and home-price deals amid (relatively) subdued local market competition, getting in before word of any further rate cuts that could ignite markets. That includes those with an upcoming renewal, eager to see how the prime rate cut has improved their chances of a better rate for their next term.

With over 1M renewals arriving in 2025 alone, 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).

If additional rate cuts emerge this year and in 2026, the potential to spur housing market activity exists. However, it is worth noting that such cuts would occur amid an economic downturn and higher unemployment, which may temper home prices and sales growth.

Read more in our Housing Market Forecast 2025-2027

Dan's mortgage rate advice for 2025?

Use an expert broker to get your best rate and mortgage — if you really want to save more.

Whether rates are falling or rising, your best rate and mortgage can help you better afford your home. Many Canadians are still 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 — and 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 puts you first.
• 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 rates have lowered, but a variable rate may still offer increased savings.

Fixed mortgage rates have recently lowered, but a variable rate may still have some drop room, if you can stomach the risk. If you have time to make your decision, keep in mind that fixed rates will still be volatile in a tight range, increasing or declining along with the bond yield market.

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.