Canadian Mortgage Rate Forecast 2026

Canadian mortgage rate forecast 2026

Canada’s economy has improved over the last few months, but it still faces uncertainty and risk from familiar places, including the war in the Middle East and U.S. trade policy, and inflation has moved higher as a result. On October 28, 2026, the Bank of Canada raised its overnight rate by 25 basis points (bps) to 2.50%, its first increase since July 2023. That keeps the rate inside the so-called ‘neutral range’, but below the Bank’s midpoint of 2.75%.

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.

The Big Six banks raised their prime rate by 25 bps to 4.70%, effective October 29. TD continues to offer two versions: TD Prime for HELOCs and credit lines (4.70%) and TD Mortgage Prime for stand-alone variable mortgages (4.85%, up from 4.60%). This was the first change since the October 2025 cut, which brought the prime rate to 4.45%.

Your variable rate is priced as a set amount above or below prime. If your rate is prime minus 1.00%, for instance, then the hike would make it rise from 3.45% to 3.70%.

Fixed rates, on the other hand, follow bond yields rather than the overnight rate, so the hike will have no immediate impact. It matters only when you renew or buy. The five-year Government of Canada yield, the benchmark lenders use to price fixed mortgages, has climbed to about 3.7%, more than triple the sub-1% levels of 2020 and 2021.

What's next for Canadian interest rates?

The outlook is still uncertain, but the direction has shifted: the chances of a cut are now slim, and further hikes are the more likely outcome.

The Bank said more increases may be needed but that it will proceed carefully, with the next announcement on December 9. Most forecasters agree that the rate will hold at 2.50% for the rest of 2026, then rise in 2027. In a Reuters poll of economists taken before the decision, a majority expected one more increase before March 2027, followed by a hold at 2.75%. Many banks, including TD Economics, echo this sentiment. Scotiabank, on the other hand, is more hawkish: its latest forecast snapshot has the policy rate at 3.25% by the end of 2027.

Canada’s GDP in 2026 has been uneven as the economy adjusted to several new realities, including U.S. tariffs and slower population growth. GDP growth was 3.3% in the second quarter, with about 2% expected in the third, but the Bank projects a slowdown to 0.8% in the fourth quarter as new U.S. tariffs bite. The unemployment rate has been around 6½% for several months, and it was 6.5% in September after the economy lost 68,000 jobs.

Consumer Price Index (CPI) inflation rose to 3.1% in September from 3.0% in August, driven mainly by gasoline prices, which were up 27.8% from a year earlier. That is just above the top of the Bank’s 1%–3% target range. Excluding gasoline, inflation was 2.2%, and CPI-trim, a core measure, eased to 1.8%. But the Bank now expects inflation to climb before it eases: to about 3½% by the end of 2026, averaging 3% in 2027, then returning to 2% in the middle of 2028. This will depend on oil and gasoline prices, which remain volatile, and on whether businesses will pass higher costs on to consumers.

Lastly, the housing market remains weak and has softened in recent months. National home sales fell 2.3% from August to September, and the MLS Home Price Index edged down 0.4%. The benchmark price was down 3.4% from a year earlier, according to the Canadian Real Estate Association (CREA). CREA has now cut its 2026 sales forecast for the third straight quarter.

On the brighter side, the Bank does project GDP growth improvement down the road, from 1% in 2026 to 2% in 2027 and 2028. Hopefully, this means that everything else, including the housing market, will follow. 

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 sharply, 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 4.70% 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 stays flat, and on the high-end, prime increases by 25 bps.

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

Fixed rate forecast 2026

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

Fixed mortgage rates generally follow the yields on government bonds. Bond yields are up as geopolitical volatility and U.S.-Canada trade uncertainty have pushed inflation expectations higher. That said, most bond yields are still below the post-pandemic highs seen in 2023 — at least 0.5%-1% below — meaning that catastrophic rate increases are unlikely.

Our projections apply an increase of 0.00% to 0.25% to each bank’s current five-year fixed special offer rate, which would keep most of the Big Six in the 5.14% to 5.69% range by the end of 2026. That said, the likelihood of an increase until 2027 is low.

Methodology: The forecast ranges apply a 0.00% to 0.25% 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 up to 25 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 core objective is price stability, which it pursues through a 2% inflation target (the midpoint of a 1%–3% control range). If inflation is persistently above target, the Bank may raise the overnight rate to cool the economy. It generally looks through temporary price shocks, such as an oil spike, unless higher costs begin spreading to other prices.
    
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 Canadian dollar floats freely, and the Bank doesn’t target it. But a weaker dollar raises import prices and inflation, while a stronger one can weigh on exports, so the exchange rate feeds into the Bank’s outlook for inflation and growth.
    
6. Household financial stability
   High household debt or broader risks to the financial system can influence the Bank’s thinking, because they affect how well the economy can absorb higher rates and shocks. The policy rate is a blunt tool for these risks, though, and the Bank relies mainly on other measures, such as financial regulation and supervision, to address them. In its 2026 Financial Stability Report, the Bank said households and businesses remain in stable financial condition, though vulnerabilities have increased in some parts of the system.

Interest rates posted by major chartered banks in Canada

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

The Bank of Canada raised the overnight rate to 2.50% on October 28, 2026, its first increase since July 2023. All six of the big banks now expect at least one more hike. Their forecasts end between 2.75% and 3.25%, and they disagree on timing.

• TD Bank: TD’s October forecast tables show the overnight rate at 2.75% in the first half of 2027, then easing back to 2.50% in the third quarter and 2.25% by the end of 2027. TD Economics argues that the hike buys the Bank a few months to see whether energy costs are passing through to consumer prices, and expects one more quarter-point hike in the first quarter of 2027. It adds that the bar for hikes beyond that should rise significantly. 
• BMO: BMO had been forecasting no hikes through 2027 as of its October 14 forecast, but it has since changed course. Benjamin Reitzes, managing director at BMO Economics, says the Bank’s messaging points to further hikes, but possibly not soon, and that a December follow-up is not a lock.
• CIBC: CIBC’s October 28 forecast update has the overnight rate at 2.50% through December, then 2.75% from March 2027, where it stays through the end of 2028. That is a pause in December followed by one more hike. Senior Economist Andrew Grantham says CIBC doesn’t think the policy rate will need to move above 2.75%, because core inflation is unlikely to accelerate as much as the Bank fears. 
• National Bank: National Bank is the most inclined to move quickly. Its economists wrote that barring a de-escalation in the Middle East or a material escalation in the Canada-U.S. trade war, they lean toward another hike in December, noting the Bank’s tendency to hike at consecutive meetings.
• Scotiabank: Scotiabank remains the most hawkish. In his October 28 note, Derek Holt, vice-president and head of capital markets economics, said the bank expects a follow-up hike in December, and that its 3.25% terminal rate by the first half of 2027 carries more upside than downside risk. That implies three more quarter-point hikes by mid-2027.
• RBC: RBC’s base case is 100 bps of total hikes, three more after October 28, and it strongly suspects another hike at either the December or January meeting. One more hike would bring the rate to the midpoint of the Bank’s neutral range, after which decisions would depend on growth, the job market and evidence of cost pass-through.
• True North Mortgage: True North Mortgage’s November outlook says the Bank’s decision to hike again on December 9 is a close call. The Bank’s preferred core inflation measure, on a three-month annualized basis, rose from 2.3% in August to 2.6% in September, and surveys show businesses and consumers expect higher prices. If inflation readings keep climbing, True North sees another hike before year-end or in early 2027 as the more likely outcome.

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