Canadian Mortgage Rate Forecast 2026

Canadian mortgage rate forecast 2026

With the war in the Middle East unleashing volatility across global financial markets, combined with elevated inflation risks and projected weak economic growth in Canada, the chances of Canadian mortgage rates decreasing further are slim. Analysts now think an eventual rate hike is the more likely scenario, though they disagree on how soon that could happen.

Due to increased uncertainty, the prediction from major financial institutions is that the Bank’s rate will stay at 2.25% (in the so-called ‘neutral range’) for the next few rate announcements.

This means that the prime rate and variable mortgage rates from various financial institutions are on hold as well for the foreseeable future.

Fixed mortgage rates are a different story. Canadian long-term bond yields (5 year), which influence fixed rates, are rising due to the increase in oil prices caused by the war in Iran. Based on Bank of Canda data, yields have increased by 69 basis points between February 27 — the day before the U.S. and Israel carried out joint strikes on Iran — and May 15. This is significant as bond yields reflect expectations of future moves by the Bank of Canada. As a result, the interest on fixed rate mortgages has gone up as well.

How the Bank of Canada impacts prime and mortgage rates

The Bank’s overnight rate influences short-term borrowing costs between banks and serves as the foundation for the prime rate — the benchmark lenders use to set interest on variable-rate loans, lines of credit and mortgages.

Since the October cut, the Big Six banks’ prime rate has stood at 4.45%, with TD Bank offering two versions: TD Prime for HELOCs and credit lines (4.45%) and TD Mortgage Prime for stand-alone variable mortgages (4.60%). This is why the range of your variable rate is likely to be 4% to 5%, until the prime rate changes.

What's next for Canadian interest rates?

The outlook is uncertain. For now, the Bank is holding the overnight rate steady. Governor Tiff Macklem has said the current policy rate is “about the right level” given economic conditions. The Bank’s baseline forecast assumes oil prices will decline before inflation becomes more generalized. If that scenario plays out, any changes in the policy rate “can be expected to be small,” Macklem said in the latest announcement.

A rate cut isn’t off the table either, he added, particularly if the U.S. imposes additional tariffs against Canada during the Canada-United States-Mexico trade agreement review this June.

However, if energy prices continue rising — and remain elevated — the Bank is prepared to act. “[T]here may be a need for consecutive increases,” Macklem said.  

In the marketplace, private-sector banks are sticking with their base case, reflected in unchanged forecast tables that assume no rate hikes or cuts in 2026.

But global instability is pressure-testing the consensus. The likelihood of rate increases has risen since the start of the Iran war. The war could end within weeks, or it could drag on indefinitely. A prolonged conflict would likely have severe and long-lasting consequences, including inflation becoming entrenched across the broader economy rather than being limited to energy prices.

Economists don’t agree on when a hike could happen. The BoC was slow to raise interest rates during the pandemic, a period that saw inflation surge to as high as 8%. That experience may increase policymakers’ willingness to act sooner rather than later to prevent a similar outcome.

Scotiabank projects that the Bank of Canada could raise rates by 75 basis points in the second half of 2026, while National Bank expects a single hike toward the end of the year. RBC, by contrast, does not expect rate increases until 2027.

Meanwhile, five-year Government of Canada bond yields have risen sharply since the start of the war, climbing about 69 basis points since late February. Bond yields often reflect market expectations about the future path of interest rates. When bond prices fall and yields rise, it typically signals that investors expect higher policy rates ahead.

Taken together, a combination of higher oil prices, ongoing and potential new tariffs, expanded government spending, bond market volatility, and possible supply disruptions linked to the conflict in Iran could place renewed upward pressure on inflation, increasing the likelihood of a policy response.

Variable rate forecast 2026

Projection: Variable rates are expected to stay mostly flat through 2026.

For now, 5-year variable rates are currently lower than 5-year fixed rates, and with the Bank’s policy rate likely to stay put, variable rate mortgage pricing is projected to remain broadly stable in 2026, changing only if lenders adjust their discounts off prime.

If the economy weakens, however, lenders may tighten those discounts, nudging effective variable rates slightly higher even without a Bank of Canada move. It’s also worth noting that while the Bank’s rate is predicted to be stable, it is no guarantee that this prediction will hold true all year, given the various threats to Canada’s economy, including the conflict in Iran, tariffs, CUSMA re-negotiations and soft labour market.

So, while variable rates are cheaper, you should weigh the risks carefully.

Methodology: These projections start with each bank’s current variable mortgage rate, which is always tied to its prime rate. Since forecasts show that prime is expected to stay close to 4.45% through 2026 due to the Bank of Canada holding its key rate steady, we applied each bank’s existing discount or premium to a realistic range of where prime may fall. In the low scenario, the prime rate is reduced by 25 bps, and on the high-end, prime increases by 50 bps.

Note: This is based on the currently available data. Given the unstable geopolitical climate, these predictions could change.

Fixed rate forecast 2026

Fixed rate forecast 2026

Projection: Fixed mortgage rates are expected to increase slightly in 2026.

Fixed mortgage rates generally follow the yields on government bonds. Bond yields are up approximately as geopolitical volatility and U.S.-Canada trade uncertainty have pushed inflation expectations higher.

Volatility in bond markets is expected to persist, so expect the same from fixed rates. Some of the bolder forecasts suggest that five-year fixed rate mortgages will see an increase of 0.25% to 0.5% by the end of 2026, pushing rates to the 5% range.

Methodology: The forecast ranges apply a 0.25% to 0.5% increase to each bank’s current five year fixed special offer rate, reflecting expert expectations that fixed mortgage rates will remain mostly stable through 2026 with only slight upward movement of roughly 10 to 30 basis points (bps), driven by steady bond yields and mild inflation pressures.

Note: This is based on the currently available data. Given the unstable geopolitical climate, these predictions could change.

Bank of Canada overnight policy rate determinants

Future Bank of Canada interest rate changes will be determined by several key factors.

1. Inflation/Consumer Price Index (CPI)
   The Bank of Canada’s primary mandate is to maintain price stability by keeping inflation close to its target, typically 2% (the midpoint of a 1%-3% target range). If inflation is above target, the Bank may raise the overnight rate to cool the economy. Conversely, if inflation is below target, it may lower the rate to stimulate economic activity.
    
2. Economic growth
   The Bank monitors GDP growth to assess the overall health of the economy. If the economy grows too quickly it risks overheating, and the Bank may increase rates. If growth is sluggish or contracting, it may lower rates to encourage borrowing and investment.
    
3. Labour market conditions
   Employment levels, wage growth and labour market participation are key indicators. A tight labour market with rising wages may signal inflationary pressures, prompting a rate hike. High unemployment, on the other hand, may lead to rate cuts to stimulate job creation.
    
4. Global economic growth
   The Bank considers global economic trends, including trade dynamics, commodity prices (especially oil, given Canada’s reliance on energy exports), and the policies of other central banks (e.g., the U.S. Federal Reserve).
    
5. Exchange rates
   The value of the Canadian dollar affects exports and imports. A strong dollar can hurt exports by making them more expensive, while a weak one can drive up import costs and inflation, so the Bank may adjust rates to influence the exchange rate indirectly.
    
6. Household financial stability
   High levels of household debt or risks to the financial system may influence rate decisions. The Bank may raise rates to curb excessive borrowing or lower them to prevent financial instability.

Interest rates posted by major chartered banks in Canada

Where Canada’s major institutions now stand on 2026 interest rates 

After four rate cuts in 2025 that brought the overnight rate to 2.25%, economists across Canada’s leading financial institutions broadly agree: the base case is that the Bank of Canada is in a holding pattern — for now.

Canada’s economy is soft but not shrinking. Early projections suggest that GDP expanded by roughly 0.4% in the first quarter of 2026. The labour market, while soft, has remained in the 6.7%-6.9% range, down from a peak in August and September last year. Inflation is still within the BoC’s target range, with April data putting the Consumer Price Index at 2.8%, and CPI-trim and CPI-median at 2% and 2.1%, respectively.

That leaves the Bank of Canada on the sidelines, waiting for clearer signals before shifting the overnight rate out of neutral.

However, inflation pressures are expected to become harder to contain if the Iran war continues. Previous assumptions about how Canada’s economy might fare under the second Trump administration — particularly on trade and energy — have been disrupted by oil price shocks.

•  TD Bank: TD’s latest forecast tables show the overnight rate holding at 2.25% throughout 2026. Senior TD economists argue that a rate hike this year is unlikely, noting that the economy was in a weakened state before the Iran conflict. Moreover, the current inflationary pressures are supply-driven, which is something that monetary policy is poorly suited to address.
• BMO: BMO expects the overnight rate to remain at 2.25% through 2026, aligning with the broader ‘hold’ camp. The bank’s chief economist argues that with the struggling economy any rate hike, let alone consecutive ones, would be “quite misguided”.
• CIBC: CIBC’s forecasts also show the overnight rate holding at 2.25% through the end of 2026, matching TD and BMO. They predict two rate hikes in 2027, 25 basis points (bps) each.
• National Bank: Economists at National Bank project that the BoC will hold the key interest at 2.25% until the end of 2026, while also forecasting an eventual tightening to 2.75%, which they estimate to be around the neutral level, in 2027.
• Scotiabank: One of Scotiabank’s top economists has taken a different stance than their peers. They predict the Bank’s rate will go up to 3.00% in the second half of 2026. This is a “conservative” projection, argues Derek Holt, vice-president and head of capital markets economics. Holt says the Bank should raise rates gradually — and sooner rather than later — to avoid being forced into larger rate hikes down the road. Taking that approach, Holt says, would reflect lessons learned from the Bank’s delayed response during the pandemic.
• RBC: RBC’s forecast is for the Bank’s rate to remain at 2.25% in 2026 increase to 3.25% in 2027 as the economy begins to “normalize”.
• True North Mortgage: True North Mortgage’s April 2026 outlook indicates that the Bank’s 2.25% policy rate is expected to remain unchanged in 2026, but a rate hike is a possibility.

Note: These forecasts are subject to change, given the unstable geopolitical climate at the moment.