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.

As this year's economic puzzle continues to fill in, the image is getting clearer: the U.S. trade war is dragging Canada's economy down, and the BoC is likely to step in with a rate cut on September 17.

The latest piece to fall into place (right beside the recessionary GDP report) is the August labour report:

• 66K jobs lost (10K loss was expected)
• Unemployment rate climbed from 6.9% to 7.1% — the highest UR rate since May 2016 (excluding the 2021-22 pandemic years)

Unless the upcoming inflation report on September 16 (a day before the rate decision) comes in with a shock upside surprise — the latest numbers clearly show the need for economic support by way of an interest rate cut.

Even if core inflation stays above the BoC's 1-3% target range in the next reading, broader deterioration and the removal of Canada's counter-tariffs may be seen as enough of a drag to warrant a cut.

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 deeper 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, aiming to dominate 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.

Despite signs of economic cooling, inflationary pressures are still in play, which may give the central bank pause for the last two rate decisions of the year (October 29 and December 10).

• Tariffs and supply-chain disruptions are (slowly) making their way onto shelves in the form of higher prices
• Despite the growth contraction, consumer spending hasn't yet 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
• If the U.S. Fed lowers its policy rate amid rising inflation, it could fuel spending and demand, leading to even higher prices
• A softer loonie raises prices on imported goods (the CAD has been hovering near multi-month lows)

Will the numbers push the BoC to lean hawkish (restrictive rate path to control inflation) or dovish (lowering rates to support economic growth) as year-end 2025 approaches?

Here's how the rate markets are predicting the next Bank of Canada rate decision (courtesy of The Globe and Mail, Sep. 5, 2025):

• 25 bps cut: 90% market odds
• No change: 10% 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
  July's CPI (Canadian Price Index) shows Canada's headline inflation lowered to 1.7% (from 1.9% in June); gas was lower due to carbon tax removal compared to last year, and groceries continue to accelerate; with energy stripped out, inflation is 2.5%, down from 2.7% last month; core inflation (average of median and trim) inched higher to 3.05% — not the right direction for a BoC rate cut (next reading Sep 16 — the day before the next BoC rate decision) 
  
• 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
  June 2025 GDP declined by 0.1%, the 3rd monthly contraction, putting Q2 2025 at -0.2%; however, experts are forecasting a July gain of 0.1% (Jul reading on Sep 26)
  
• BOND YIELD MARKET – CUT
  The Canadian 5-year bond yield receded to 2.7% after reports that the U.S. Federal Reserve may make a 0.50% rate cut (a double); the BoC is likely to cut by 0.25% in September after both Canada and the U.S posted weak labour reports; inflation risks are still a concern in both countries due to tariffs and trade disruption, government spending and stimulus, and global conflict and weather events

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, 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 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 July 2025?

For Canada's latest CPI (Consumer Price Index) report, headline inflation in July cooled to 1.7%, down from 1.9% in June, 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 and the 'base year' effects that make today's gas prices look lower.

Stripping out the volatile energy component, and the average of the rest of the CPI baskets remains elevated at 2.5%, though down from 2.7% last month — groceries and shelter prices fed into this month's price pace.

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

What does July's inflation report mean for an interest cut this fall? The latest inflation readings aren't yet a reliable gauge for how trade disruption is affecting price inflation, and July's report suggests there's little room for the BoC to lower its police rate right now, despite growing calls from Canadians hoping for budget relief.

Comments from a recent Conference Board of Canada article sum up the lack of rate-cut fanfare over July's inflation numbers:

"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

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

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 are trade tensions affecting Canada's economic growth 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).

So far in 2025, Canada's 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, plunks Canada into a recessionary bucket, showing a 0.2% real GDP contraction, with each of those 3 months logging -0.1%, now including June. It's the first quarter to show a growth pace decrease since Q4 of 2022, mainly due to a sharp drop in U.S. exports (no surprise there) and business investment (also due to the export disruption).

That brings a 1.6% decline in annualized growth in the second quarter, a significant drop from the 2.0% increase recorded for the 1st quarter of 2025.

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

Despite the tariff-induced pullback in specific sectors, consumer spending overall was actually up in Q2 2025, helping to offset the GDP blow.

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?

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

National housing sales growth continued at a slow pace in July 2025, with some markets showing signs of life after a spring rush failed to materialize, though listings and home prices remained relatively flat overall.

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.

If interest rates drop this fall, it could spark a surge in home-buying 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 be muted 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 (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.

Inflation risks remain, but economic weakening is having its say.

Canada's 5-year bond yield has dropped to around 2.7% following rumours that the U.S. Fed will lower its rate by a double cut of 0.50%, with strong odds (currently around 86%) that the Bank of Canada will also drop its rate by 0.25% — both occurring on September 17.

And here's why both central banks are looking at cutting interest rates, and why the yield is down:

• The Canadian GDP report showed a contraction for Q2 2025 of 0.2%
• Canada's labour productivity dropped by a whole 1% in Q2 2025, the sharpest decline since the pandemic
• Canada's August labour report logged 66K job losses with an unemployment rate increase to 7.1% from 6.9%
• The U.S. jobs report showed a dismal 22K job creation (a gain of 150K per month is considered a sign of a balanced economy), its unemployment rate rose to 4.3% from 4.2%, and its three-month average job creation was the slowest since the summer of 2010 (outside the pandemic years)

As the world realigns to U.S. trade disruption, a war is brewing 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 a stack of inflationary factors likely to keep yields reactive:

• Higher U.S. trade tariffs are fueling inflation, which may take months to register fully
• Ballooning U.S. government debt is expected 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
• A lower Canadian dollar is driving up the prices of imported goods

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

5-year fixed rates have recently declined by around 0.05%, and other terms may follow (e.g. 2-year), assuming yields hold their recent decline trend in anticipation of the next BoC rate decision, and in response to weaker economic numbers emerging.

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 or 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 change global bond yields and risk premiums, and those moves 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 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.

National housing markets have been showing signs of improvement in the summer months, with buyers with sufficient financial resources or those relocating seeking homes and finding 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.