Why are variable and fixed rates splitting apart?
Variable and fixed rates are driven by two different mechanisms: the Bank of Canada's benchmark rate decisions made eight times a year (variable rates) and daily bond-yield market trading (fixed rates). Yet, regardless of spread differences along the way, these two rates generally pull in the same direction, as bond yields typically anticipate where the Bank of Canada rate will eventually go next, up or down.
There are two economic forces working against each other right now for rate direction, but fixed rates are freer to react to the 'risk of the moment.'
A tariff hit like the one we're seeing in our U.S. trade relationship is an economic growth staller. It slowly weighs on exports, jobs, and business investment — the kind of blow that normally argues for rates to go down to support the economy.
Energy costs pull a different lever. Rising oil and gas prices feed inflation, and signs of inflation can quickly move bond yields upwards, with fixed mortgage rates usually following within hours or days. When bond investors start to really believe that inflation will rise, and the Bank of Canada eventually sees those economic indicators, it raises its policy rate, which raises bank prime rates and variable mortgage rates. (The BoC only has 8 times a year to do that, versus daily bond yield movements pushing around fixed rates.)
The current cut/hike opposition between the potential for cooling growth or hotter inflation means variable rates are more likely to continue to hold, like they've been doing since October 2025 — the growth picture hasn't turned bad enough yet to justify another cut, yet it's just bad enough to rule out a hike to tame inflation (for now).
Fixed rates, however, have been rising as higher energy prices make inflation the 'risk of the moment.'
Same trade war this year and last (with different tariff threats levelled), but now energy inflation could feed into more tariff-related inflation, keeping lower fixed rates off the roster in the near term.
Are there any signs the uncertainty will settle to offer a rate direction?
That's part of our problem in forecasting rates during these uncertain times. Yes, tomorrow a Middle East ceasefire could ease energy inflation risks, and if the 50% tariffs really do go through on August 21, lower fixed rates and an eventual BoC rate cut could come into focus.
Or, on the other hand, the U.S. tariffs could be called off, especially if 'intense negotiations' pencil a deal that makes the trade uncertainty fade like a worn-out jersey. Then, if Canadian growth continues to recover in 2026, but an ongoing Middle East conflict makes energy inflation a more immediate rate target, both fixed and variable rates could bend upwards this year.
How do these latest tariff threats impact your mortgage decisions?
Having lived under the threat of U.S. tariffs now going on two years, these new tariff headlines renew a sense of uncertainty and caution in buying a home, renewing, or refinancing — and heightened urgency in finding the right mortgage rate and fit.
Our client base keeps growing, an indication that more Canadian home buyers and owners are looking past their direct bank relationship to seek out a deal that actually gives them more budget room, realizing that the process to get a mortgage through another lender can be made relatively seamless in the hands of an expert broker.
Many of our True North clients are still (overwhelmingly) choosing a variable rate with the savings offered over higher fixed rates. If these new tariffs stick around, the potential drag on our economy is likely to build confidence in those decisions, assuming these rates continue to hold or go lower.
That's no guarantee that prime rates won't need to rise to tame energy inflation, especially if both high inflation and high unemployment exist at the same time, creating stagflation conditions that could keep rates higher longer. The good news about a variable rate is there is usually flexibility to switch to a fixed rate, penalty-free.
However, if you prefer the stability and peace of mind of a fixed rate in these uncertain times and are shopping for a home or renewing soon — ask your expert broker about a rate hold, consider a cheaper shorter-term rate than the standard 5-year, and ask them to alert you to fixed rate specials in the coming days (which they'll do anyway).
Would new U.S. tariffs impact Canada's national housing market?
Our national housing market has seen recent signs of recovery following last year's trade disruption, and another U.S. trade hit, along with higher energy costs, may stall or delay that recovery and further raise home-building costs, impacting future inventory relief.
Many Canadian home buyers and sellers have remained on the sidelines as economic uncertainty continues and everyday prices keep rising. However, we've seen plenty of clients tired of trying to time the market, seeking home and rate deals to make their move.
Canadian sectors hit, but the worst trade scenario didn't materialize in 2025.
Rate uncertainty started in early 2025, with the U.S. President talking tariffs the moment he was reinstalled into office. Many threats were made and then rescinded, mostly due to Canadian goods compliance under CUSMA, though punishing tariffs were placed on major sectors, such as steel, aluminum, softwood lumber, and the auto industry.
But dire predictions of 8% inflation and a full recession resulting from the tariff threats didn't happen.
Canada's economy has weathered the hits and outright trips enough to avoid economic disaster and even begin a slight recovery in 2026, while inflation due to tariffs was mostly kept at bay by slowing growth and a declining Canadian population (less demand = reduced price pressures).
That said, inflation didn't stay contained everywhere. Higher grocery bills are where Canadians actually feel the tariffs and the disruption to once-established trade routes.
The Bank of Canada did reduce its policy rate in 2025 by 1.0% (to 2.25%) to support the economy, which brought variable mortgage rates down to where they sit today — at a discount off bank prime rates of 4.45%.
Fixed rates were also lower last year, in line with a neutral BoC rate and sluggish growth — as politicians, diplomats, and business leaders started forging a path away from its largest trading partner (which it still is today, despite interprovincial and international trade progress).
A new economic bruiser surfaces in 2026: energy inflation.
Then, early this year (February 27, 2026 to be exact), the U.S.-Iran conflict started up, and a global oil supply choke through the Strait of Hormuz sent oil and gas prices much higher. Energy inflation was the new buzzword, which looked to be contained until another resurgence of tensions that have sent prices higher once again.
Elbows up, again?
Canadian Prime Minister Mark Carney and provincial Premiers appear united against the recent U.S. trade tactics and headlines, looking to stand their ground and even retaliate if the U.S. gloves come off and stay off, which means Canadians will be glued to the economic and rate scoreboards.
Yes, the Canadian economy relies pretty heavily on U.S. trade, but many U.S. sectors and industries also benefit — especially for materials and sources they need to make their outsized-growth economy the consumption engine it is (and one that greatly fuels its place in the world economy).
We're in your (mortgage) corner, helmets on.
You may be tired of hearing the word 'uncertainty,' but we're not (at least, not on your behalf). That's because our expert, salaried, highly trained brokers turn your questions and complexity into certainty — certain savings, certain advice, certain confidence to help you make clearer decisions for your situation.
We offer you more lender and product choices than ever, helping you find the right mortgage rate and fit to reach your homeownership goals.
True North is a proud Canadian company, and with the most 5-star reviews in the industry (by far), we're here to fight for you, not the lender.
Give us a shout today — a few minutes with us could save you thousands. Find us online, on the phone, by email, or drop by a store location near you.
