As trade uncertainty rolls on, what's the rate impact?

Dan, for someone looking at a mortgage today, how would you sum up the current rate picture?

Despite what’s in the media, mortgage rates are relatively stable, with a slight downward trend at hand. That trend could reverse next week — market sentiment has a lot to take in these days. But the effect on fixed and variable rates is expected to endure within a tight range.

How has trade uncertainty affected mortgage rates in Canada so far?

The Canadian prime rate fell another 0.50% in the back half of 2025, considered a direct result of ‘tariff’ being the word of the year. Trade friction with the U.S. is dragging exports, business investment, jobs, and overall growth, with the projected 1.0% growth for 2026 little more than a kid’s wagon being pulled along for a walk in the park (i.e. there’s no real momentum).

When growth slows, bond yields usually slip, which puts gentle downward pressure on fixed mortgage rates and gives the Bank of Canada a bit more room to trim prime.

On the flip side, tariffs and supply snags are still pushing up prices in parts of the economy. Add in other inflation risks, like government debt and spending, and the Bank has less freedom to keep cutting.

Are U.S. trade changes more likely to push rates up or down in the near-term?

That's the million-dollar question right now.

The general consensus is leaning towards the next Bank of Canada move being a notch lower rather than higher (though perhaps not for a few months), with inflation projected to remain moderate and the economic threat of more U.S. tariffs hanging in the air. That consensus could change with the next emerging factor — things are that volatile right now.

Are we in a structurally higher-rate era compared to 2020–2021, or is this still part of a normal cycle?

The ultra-low rates of 2020–2021 were the exception, not the rule. They were driven by emergency pandemic policy — massive stimulus, near-zero central bank rates, and bond-buying programs designed to stabilize the economy.

What we’re seeing now is closer to a normalization. Central banks raised rates aggressively to fight inflation, and while rates have eased from their peak, they’re settling into a range that’s more historically typical.

That doesn’t mean we’re stuck in permanently high-rate territory. It means borrowers shouldn’t anchor their expectations to the lowest rates in modern history, even amid trade turmoil. Mortgage rates tend to move in cycles, influenced by inflation, growth, and fiscal conditions. We’re still in that broader cycle and not in emergency mode.

The key for homeowners is to plan around sustainable rate ranges, not pandemic-era anomalies.

What economic signals are you watching most closely?

It’s not as simple as ‘trade war equals higher rates’ or ‘trade war equals lower rates.’

It comes down to four key factors to watch: inflation, economic growth, the labour market, and bond yields.

Inflation tells us whether the Bank of Canada has the flexibility to lower its interest rate or needs to hike it. GDP growth and the unemployment rate tell us how much momentum the economy has.

And the bond market — much larger than the stock market — is a daily barometer of how emerging factors might impact lender costs and move fixed mortgage rates, and eventually, prime rates.

Other than trade, what else do you see as potential red flags that could impact mortgage rates in Canada?

A significant underlying market concern right now — globally — is ballooning government debt, especially in the U.S.

The recent Supreme Court ruling that some of Trump’s previous tariffs were illegally applied immediately lowered the average tariff rate on imports into the U.S. from roughly 13.6% to 6.4%.

That may sound good to some countries, but the resulting dramatic drop in U.S. tariff revenue from $335B annually to $155B has the government scrambling to reinstate more tariffs through other measures before the debt-to-GDP ratio surges to G-force levels.

As it stands, U.S. interest payments on its debt currently exceed its entire defence budget. That level of debt can push borrowing rates higher throughout banking and investment systems.

Here at home, an increasing fiscal deficit also keeps pressure on Canadian interest rates, as markets are likely to charge the government more when it borrows to meet its budget, just as someone who takes on more debt might pay a higher interest rate on an auto or home loan.

What the government is charged to borrow trickles down to you and me.

Do you see fixed and variable rates reacting differently right now?

These rate types are set by different mechanisms. Fixed rates have eased slightly amid recent declines in bond yields (aka lower lender costs).

Despite variable rates tied to the Bank of Canada’s policy rate, which is in ‘pause mode,’ banks have felt more confident, resulting in increased competition through better discounts off prime on their variable rates for good-credit clients.

In uncertain times, do borrowers lean more toward fixed or variable?

Typically, uncertainty pushes more people toward fixed rates. Predictability holds some value when headlines feel volatile.

Yet with higher grocery prices, higher Canadian home prices, and borrowers just coming off a 22-year high in interest rates, homeowners are particularly budget-sensitive.

More of our clients have been choosing a variable rate because it’s typically their cheapest option right now. Or they’re opting for a shorter 3-year fixed rate instead of the stalwart 5-year fixed, as more homeowners bank on getting into lower rates sooner.

In January 2026, 43% of our clients chose a 5-year variable, versus 27% a 5-year fixed and 23% a 3-year fixed. In a typical market, those shares sit closer to 30%, 60%, and 7% — a clear departure from the norm.

What’s the advice for someone renewing in the next 6 months?

Trade uncertainty is likely to remain high over the next few months, as the July 2026 Canada-U.S.-Mexico trade deadline approaches.

But trying to time your mortgage renewal in between headlines may also lead to budget regret. The least stressful strategy is to renew closer to your maturity date with a discounted rate rather than trying to time the market.

Engage an expert broker who can answer questions, compare your options, and help you feel ready to make your move. Leave enough time to switch to a better deal, if needed — about a month before your deadline.

And for buyers who feel nervous about rates?

Getting clarity on your situation is the best way to feel settled amid stressful times.

Understand what home prices and mortgage payment amounts work comfortably in your budget through a pre-approval — your details will be stress-tested to show that you can handle payments if rates rise to 5.25% or by 2.0% (whichever is greater).

And considering that interest rates have come down since July 2024, mortgage rates aren’t the main issue right now. There may be other strategies to get your foot in the real estate door or to buy your next home, such as using first-time buyer rebates or programs, an insured mortgage that requires a lower down payment, including non-traditional income sources on your mortgage application, or enlisting a guarantor or co-signer to improve your details.

Uncertainty doesn’t need to mean paralysis. A solid plan that addresses your unique situation can help you move forward.

What’s the most common mistake you’re seeing homeowners make when rates feel unpredictable?

The most common mistake I see, without a doubt, is a reluctance to have a broker shop around for a mortgage rate. That comparison — discovering what other lenders and products are available based on your unique details, and the rate you may be offered — gives you more power and control over your homeownership budget and decisions.

I do understand that some Canadians are very busy or feel they need to stay with their bank. However, an expert mortgage broker can often find deals in a competitive rate environment and is trained to handle the details of a switch or to place your first mortgage with a lender offering a better rate.

If you're at all concerned about your budget, it makes sense to check, and there's typically no obligation to follow the advice.

Bottom line — should Canadians be worried about sharp rate swings because of trade tensions?

We don’t expect panic swings over the next year or so. Trade uncertainty adds volatility, but mortgage rates are influenced by multiple factors — inflation, growth, global markets, and central bank policy, which take time to work through the economy. The pandemic was a panic interest-rate event. Our current scenario is already eliciting a more measured response.

Despite tariff threats, many U.S. businesses want a trade resolution that doesn’t materially change the current balance. Should the worst happen and the trade relationship is drastically altered, or the best happens, and we can establish some normalcy, we’ll likely have a few months’ notice of the next trend in interest and mortgage rates.

The Bank of Canada and rate markets are holding their breath, waiting for a trade chaos off-ramp to appear, but we don’t anticipate significant rate movements in 2026 beyond a possible 0.25% move in either direction.