Canadian Mortgage Rate Forecast 2026

Canadian mortgage rate forecast 2026

Due to increased uncertainty stemming from Middle East conflicts, the base case 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. The risk is now slightly tilted towards an eventual rate hike sometime in late 2026 or early 2027, according to some bank economists.

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 last interest rate change in October 2025 (a cut of 25 bps), 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. The Bank doesn't want to move rates in either direction just yet: raising them to contain inflation could slow the already soft economy, while lowering them could allow inflation to become broad-based and persistent.

The BoC expects the Canadian economy to post some growth in the second quarter of 2026, buoyed by consumer spending and housing activity. However, Macklem acknowledges the Bank will have to be nimble to deal with unusually elevated uncertainty. Conditions can change quickly. In the June rate announcement, he pointed to the shifting Canada-U.S. trade relationship, the conflict in the Middle East, and the impact of energy prices as factors that could sway monetary policy in either direction.

The economy has been struggling. Canada’s GDP shrank slightly in the last quarter of 2025 and barely grew in the first quarter of 2026 — marking two consecutive quarters of decline, which technically meets the definition of a recession, though some economists argue the numbers are too close to zero to call it that.

Inflation is running hotter than the Bank's target rate. Prices rose 3.2% in May compared to a year ago, up from 2.8% in April, mostly because of high gas prices driven by the war in Iran. Strip out gasoline, though, and underlying inflation is right around the Bank's 2% target — which is why it hasn't felt the need to raise rates.

The job market has held up better than expected. Unemployment had been drifting between 6.7% and 6.9%, but a strong May — when the economy added 88,000 jobs across construction, transportation and other sectors — pushed the rate down to 6.6%. That recovers most of the ground lost since January.

The Bank is in a wait-and-see mode, watching to see whether the Iran-driven energy shock fades or spreads further into everyday prices. An interim U.S.-Iran peace deal signed in mid-June has already started to bring oil prices down, which could pull inflation lower in the months ahead. Trade tensions with the U.S. remain a separate source of uncertainty. In May, Macklem acknowledged that if energy prices continue rising and remain elevated, “[t]here may be a need for consecutive increases.”

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 4.45% 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 

The Bank of Canada cut interest rates four times in 2025, bringing its overnight rate to 2.25%, where it has stayed. Most economists at private banks expect it to remain on hold for the foreseeable future.

• TD Bank: TD’s latest forecast tables show the overnight rate holding at 2.25% throughout 2026. Senior TD economists are pushing back on market predictions that a rate hike this year is likely following the strong jobs report. In a June 5 research note, TD cautioned against reading too much into a single data point, arguing that the economy is "treading water — not strong enough to justify rate hikes, but not weak enough to signal a deep downturn."
• 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 the weak GDP results should “throw a wet blanket on rate-hike talk, as the economy is in no condition to deal with higher rates."
• 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. “[T]he Bank of Canada is very happy to sit on its hands, see how these risks evolve,” Senior Economist Andrew Grantham said.
• 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: The consensus among Scotiabank’s economists is markedly different than its peers. The bank forecasts that the overnight rate will go up to 3.00% in the second half of 2026. The Bank of Canada is overstating trade risks and underestimating the risks of effects of rising fuel prices, warns Derek Holt, vice-president and head of capital markets economics. In previous notes, Holt said 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 said, 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 but increase to 3.25% in 2027 as the economy begins to normalize. Senior Economist Claire Fan notes that the U.S. Federal Reserve’s key interest rate is in the upper range of neutral while the Bank of Canada’s key rate — which historically has tracked the Fed’s — is in the lower end of neutral. That gap, Fan argues, is unlikely to persist indefinitely.
• True North Mortgage: True North Mortgage’s June outlook indicates that the Bank’s 2.25% policy rate is expected to remain unchanged in the summer of 2026, but a change in monetary policy – either a hike or a cut – is on the table in the second half of the year. The economy is giving mixed signals, and the Bank’s approach has been to wait out this uncertainty by keeping the overnight rate steady, says Dan Eisner, the founder and CEO of True North Mortgage. A hold through to the end of 2026 remains the most likely scenario, though the risk of a hike enters the picture if inflation exceeds 3.5% and the economy proves resilient.

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