When the prime rate falls, the fixed-rate crowd asks 'Do we win?" And if it rises, fixed rates have usually already risen.
Fixed rates move weeks or months before changes to the Bank of Canada policy rate and bank prime rate. Here's why.
Everybody in mortgage land gets excited when interest rates drop, or worries when they start to rise. They call their expert True North broker to see how much their mortgage rate is falling or going up.
Variable-rate mortgage and HELOC holders get the good or bad news — their rate, which is directly affected by Bank of Canada and bank prime rate cuts, will be lowered or raised.
But if you have a fixed-rate mortgage or a pre-approval hold ahead of buying or renewing a home? Like a dog that's plopped down mid-walk — that ain't budging.
Here's what does move fixed mortgage rates.
Just so there's no confusion, once you've signed your mortgage, your fixed rate is locked for your chosen term (e.g. 5 years) and won't budge until renewal — which means watching prime rate drops or hikes from the sidelines.
Or you can break your mortgage to take advantage of a better rate, but it likely means incurring a potentially hefty pre-payment penalty, which sometimes can make (mortgage) savings sense.
A bond is a loan to a government or company that pays a fixed return over a set term (e.g. 2-year, 5-year), so fixed mortgage rates are also set by term, competing with bonds for investor capital while covering loan operating costs.
Fixed rates are set at a 1-2% spread over bond yields (the rate of return investors get, based on the price they paid), depending on mortgage market competition and a lender's operating costs.
When bond yields move, fixed rates eventually move if a trend holds. And then prime rates may follow later. The bond yield market is bigger than the stock market and reacts daily to economic pressures and factors. Yield movements signal where the prime rate, which is set according to Bank of Canada policy rate movements, could be headed in the near or longer term.
Fixed mortgage rates typically move down well before any 'expected' prime rate drops, or rise before prime rates do.
The only reason you'd see fixed rates move around the timing of prime rate changes is if bond yields reacted to something the market didn't expect, and lenders follow that move for setting their fixed rates.
Read more about how fixed rates are tied to bond yield movements, and when banks will actually trigger changes.
According to True North's historical rate chart, in January 2020, our best 5-year fixed rate average for the month was around 2.60%.
Usually, yes, 5-year fixed rates are typically higher than 5-year variable rates (including lender discounts) by a spread of 0.25% to 1.0%.
However, that spread relationship can invert during times of extreme economic stress, like post-pandemic, when the prime rate rose so high (a 22-year high) to tame 8.0% headline inflation, and fixed rates were actually cheaper. During this rate-spread anomaly, it took a couple of years for the natural spread relationship to return as prime rates finally fell to a more neutral level.
Global inflation pressures are the main market concern currently keeping bond yields and fixed rates higher. Sustained higher oil prices are compounding other risks, such as government debt and AI corporate spending, and combined with recent additional tariffs and Canada's counter-tariffs, inflation is expected to remain higher for longer.
However, an ongoing U.S. trade disruption is also expected to drag Canada's economic growth. If inflation eases (e.g. international oil prices decline), fixed rates may fall in response, even if the prime rate stays put.
A sustained downward fixed-rate trend will only take hold if inflation pressures dissipate enough that bond traders believe in the direction.
The flipside is that inflation pressures grow, pushing fixed rates higher. Current fixed-rate levels still have another prime-rate hike or two baked in, though fixed rates could still move up and down within a tight range.
Our highly trained brokers know a thing or two about mortgages — and are great at coaxing your very best fixed or variable mortgage rate (in your preferred language).
We shop lenders for you, pass along a volume discount and help you avoid hidden fees and charges. And we pair your great rate with great company: a flexible mortgage that can help you save now and later if you need a change.
Various tools and functions of this website perform calculations and provide cost estimates. These tools are designed for illustrative purposes only and make many assumptions that may not reflect all situations. Please use these tools in collaboration with a True North Mortgage agent. True North Mortgage does not guarantee the accuracy, reliability or completeness of these tools or calculations.
Banks raise or lower their fixed mortgage rates within days of a shift in bond yields, but a corresponding prime rate move usually takes much longer — weeks or even months, depending on economic conditions.
Learn more here:
Mortgage Rate Forecast (2026-2030)
How Government Bond Yields Relate To Mortgage Rates
Continually updated. Where rates may go now and later — and what’s driving them.
Find out how what penalty you might pay and when it makes sense to break.
The prime rate sets the temperature for your mortgage costs. Learn more.
