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.

Why did the Bank of Canada cut interest rates again 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.

The Bank of Canada sent in another rate cut to pinch-hit for a slowing economy. This move makes it cut No. 2 for Fall 2025 — which is already remarkable, given that, a few weeks earlier, wider expectations were that the rate would hold at 2.5% for the rest of the year.

This second consecutive rate cut is remarkable for four primary reasons:

1. Headline inflation rose past the 2.0% target. If you remember what we went through (skyrocketing rates) to get inflation back to target from 8.1% (reached in June 2022), creeping inflation should have kept rates paused.
   
2. Inflation's rise is being driven more by tariffs and trade disruptions than by demand. A very different scene from the inflation we saw post-pandemic, when robust demand and supply shortages drove price increases.
   
3. The BoC has said it will consider broader factors and downgrade the importance of its preferred measure, core inflation. That one gets a simple 'wow,' and signals the high-inside curveball being thrown to our economy by the trade disruption.
   
4. The BoC is supporting economic softening instead of tackling rising inflation. The central bank's sole mandate — to control inflation — has taken a back seat. It reasons that the same softening (such as a lack of business investment, rising unemployment, and weaker consumer spending) will be its own drag on taming even tariff inflation.

Dire consequences were envisioned when President Trump first threatened U.S. tariffs back in January 2025. Despite some consolation that the worst hasn't yet happened, it's suspected that deeper damage may be underway and won't show up for months.

Trade uncertainty persists, with no deal yet in sight. And once a new U.S. agreement is struck, new tariffs on now-protected CUSMA products could change the trade game Canadians have known for decades.

It's not all dour, however. Rates are freshly lower, and many Canadians will eventually see more relief on their payments, including mortgages. The lower rates will also help encourage job creation, spending, and business growth and investment, as well as improve home affordability.

Will the BoC cut rates again on December 10?

It's too far to call, even though it's only a few weeks away. The BoC rate now sits at the bottom end of its neutral range, and a further dip into stimulative territory would require more evidence of economic slack.

Some economists, including CIBC Chief Economist Benjamin Tal, see a BoC rate reduction to 2.0%. But whether that possibility occurs on the next rate date, or early January 2026, or not at all, depends on the upcoming play between inflation, the labour market, growth readings, and business and consumer confidence. Oh, and whether the trade dust looks to settle.

For October 29, rate markets called this Bank of Canada cut: 

Courtesy of mortgagelogic.news for October 29, 2025:

• 25 bps cut: 92% market odds
• No change: 8% 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?
  September's CPI (Canadian Price Index) comes in warmer, with a 'modest' upside surprise:
  • Canada's headline inflation rose to 2.4% (from July's 1.9%) when a reading of 2.2% was expected
  • Gas fell less compared to last year, and food and entertainment costs rose
  • With energy prices stripped out, inflation is running at 2.7%
  • Core inflation (average of median and trim) also inched up to 3.15%
  • Despite all the 'rising,' economists remark that underlying inflation remains in check, which may support an anticipated BoC rate cut next Wednesday
  • Next reading Nov 17
    
• LABOUR MARKET – CUT
  Canada's September labour market surprised analysts with 60K jobs added, and (surprisingly) these numbers were led by the tariff-attacked manufacturing sector; the unemployment rate remained unchanged at 7.1%; despite this seemingly rosier report, labour market sluggishness hasn't turned the corner (next reading Nov 7)
  
• WAGES – PAUSE
  September's average wage growth increased to 3.3% from last month's 3.2%, an indication of inflationary pressure (next reading Nov 7)
  
• 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 – CUT
  The Canadian 5-year bond yield is feeling some pressure but holding around 2.6% following the expected Bank of Canada rate cut; the ongoing trade uncertainty, the U.S. government shutdown, and a new U.S.-China trade deal will place downward pressure on yields; however, inflation is rising in both Canada and the U.S., and another rate cut may fuel fears of heating demand; a new fall budget from the Canadian Government outlining more spending is also sure to raise the inflation flag

What's the most important economic factor the Bank of Canada considers? The BoC's sole mandate 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 to cut rates to 2.0% by the end of 2025 or early 2026.
• 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 2.0% 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.
• BMO Capital Markets has forecast the BoC rate to fall to 2.0% in 2025 or early 2026.
• Desjardin economist Royce Mendes expects the BoC rate to fall to 2.0% in 2025 or early 2026.
• Capital Economics predicts a BoC policy rate of 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 is pushing rates lower — but there's not much runway left.

Today, the prime rate sits around 4.45%, based on the current BoC policy rate of 2.25%. That's about one rate cut lower than I had predicted just a couple of months ago.

U.S. and Chinese tariffs are projected to cost Canadians and businesses billions, with signs of a broad economic slowdown already nudging sentiment towards another rate cut, likely to close out 2025 or arrive in early-to-mid 2026.

At the same time, multiple inflationary pressures are surfacing, and a weaker-than-forecast Canadian dollar and increasing government spending and deficits are adding to the mix.

Even with a slackening economy, rates don't have much room to go lower — depending on how the trade agreements with the U.S. and China shake out (the latter has imposed 100% tariffs on Canadian Canola, a huge hit to that sector).

The overnight benchmark rate (aka BoC rate) has already fallen by 2.75% since June 2024, and there are likely enough non-tariff inflationary pressures and global volatility to keep rates from hitting rock bottom this time around.

Dan's rate prediction for the rest of 2025.

When tariffs suddenly appeared, predictions suggested that the BoC might need to lower the policy rate to 1.5% and the prime rate to 3.70%. Those predictions could still come true.

But we've had a couple of recent rate cuts, and at some point, they need time to work through the economy. The risk is that the Bank of Canada cuts rates too low for the conditions, overshooting the runway, and pushing inflation back onto a track to grow beyond being subdued by an interest rate hike or two.

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 2.0% (prime to 4.2%) by year's end or in early 2026. If inflation shows too much vigour, however, the current rate may hold until into the New Year.

As always, my forecast is subject to change, especially if trade clarity suddenly bursts through the clouds.

What is the BoC's current neutral rate range?

The Bank of Canada's published neutral rate range, which estimates a rate position that neither stimulates nor holds back the economy, is pegged at 2.25% to 3.25%.

The BoC rate is now at the low end of that range, and the central bank may decide to dip its interest rate into stimulative territory.

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 due to tariffs makes it unlikely this year or into early 2026.

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 has pushed yields and fixed rates down, as they respond to softening numbers and global instability. If another interest rate cut is anticipated in 2025, expect yields and fixed rates to decline ahead of these moves.

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 higher in September 2025?

For Canada's latest CPI (Consumer Price Index) report, headline inflation in September rose to 2.4% from August's 1.9% (2.2% had been expected). That reading leaves the Bank of Canada's 2.0% target behind, though still below its upper range of 3.0%.

Stripping out the volatile energy component, the average of the rest of the CPI baskets elevated to 2.7% from last month's 2.5%. Contributing to the rise were base year effects for gasoline (which fell less than last year), along with higher grocery and entertainment prices. The September inflation rise isn't considered broad-based; instead, it is limited to certain goods and services affected by tariffs.

Core inflation (the average of median and trimmed measures) also rose to 3.2% from 3.1% in August. However, the BoC has recently downgraded the importance of these measures in light of the economic softening, which is expected to exert increasing drag on prices. Looking at the 3-month annualized rate (another preferred measure for the BoC), it remains lower than core at 2.7%, up only slightly from 2.6% in August.

Inflation readings lag the market, and the BoC is likely 'reading the room' on sluggish growth and gloomy business and consumer sentiment rather than zeroing in on a rise in some CPI baskets.

However, if headline inflation pushes over 3.0% and core inflation heats up, too, further rate cuts may be in jeopardy until weakening demand overtakes trade and tariff price pressures.

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

Despite a more upbeat September jobs creation of 60K, when only 5K were expected, it doesn't mean this sector has reached a turning point to take a rate cut off the table — especially since the unemployment rate remains high at 7.1%.

Canada still has a net deficit of 106K jobs for the past couple of months, and only a 22K net jobs gain for 2025 so far. Canada's monthly job losses, especially in the private sector, have been mounting due to the U.S. trade war, particularly in trade-sensitive sectors like manufacturing and transportation, but now spreading to other industries, such as wholesale and retail trade.

Student unemployment continues to ride at highs of around 17%, last at these levels in 2009 (outside the pandemic years), which indicates that businesses oveall aren't in the hiring mood, often opting for older (and fewer) workers to meet demand.

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:

• A U.S. government shutdown can have knock-on effects, reducing trade, consumer demand, and business confidence
• 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 still holding at 2.6% following the Bank of Canada policy rate cut, made to support the economy, while turning a cheek to rising headline inflation (which is expected to be tempered by that very same softer economy).

Factors placing downward pressure on yields, which could keep fixed mortgage rates from rising:

• The recent BoC Business Outlook Survey indicates stifled business hiring intentions and investment
• The U.S. government shutdown could further slow consumer demand and trade in Canada (there is still plenty enough being exported to be impacted)
• Declining business output in Canada due to the U.S. trade war
• Ongoing U.S. trade threats
• Cautious concern over an AI bubble developing in the stock market

Inflationary pressures remain to keep yields aloft:

• Recent rate cuts may fuel enough demand to keep inflation from easing
• The recent Canada Post strike may increase consumer prices
• Continued and additional U.S. tariffs and supply chain disruptions
• Government debt forecast to pile up on both sides of the border
• Businesses are starting to pass along tariff and trade costs to consumers

Some economists expect one more BoC policy rate cut before the year's end, or in early 2026. Watch yields to be the tell: if they rise in response to ongoing inflationary risks, or continue a downward trend in response to weaker data.

Will fixed rates decrease if economic weakening trumps inflation?

('Trump' pun intended.) 5-year fixed rates have recently declined by about 0.04%, and rate specials are popping up. 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 outlooks. Whether this downturn turns into a long, protracted period of negative growth is yet to be determined.

With a high-interest-rate environment quickly imposed on Canadians to tame surging inflation post-pandemic, a mild recession was expected through the first half of 2024, but it 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 expect 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 because our inflation pace isn't high enough, having decreased to around 2% from over 8%, and our unemployment rate isn't yet reaching towards 8%.

Those conditions could change if inflation 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 — like a 2- or 3-year fixed, or 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.