Canadian Mortgage Rate Forecast 2026

Canadian mortgage rate forecast 2026

Though Canada’s economy has experienced a slight improvement in the last few months, it’s still facing uncertainty and risk from all the same places, including the war in the Middle East and U.S. trade policy. As a result, the base case from major financial institutions as of July 2026 is that the Bank of Canada’s rate will remain at 2.25% (in the so-called ‘neutral range’).

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 basis points (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, though the chances of the rates going down are slim. Rather, there is a much higher likelihood of the opposite. Most financial institutions agree that there will be a hike at some point, with the disagreement being largely around the timing of it. Most foresee a hike sometime in 2027, while some institutions, like Scotiabank, predict a hike in late 2026.

Canada’s GDP in the last year was uneven as the economy adjusted to several new realities, including U.S. tariffs and slowed population growth. The unemployment rate has remained in the 6%-7% range since late 2024, sitting at 6.5% as of June 2026.

Consumer Price Index (CPI) inflation rose above 3% in May, coming close to being outside the target range, which was driven primarily by the increased gas prices due to the war in the Middle East. Factoring out gas prices, inflation was at 2.2% that month. As of June 2026, CPI inflation is at 2.8%. It’s expected to stay elevated throughout June and start easing off in the second half of the year until reaching around 2% by early 2027. This will depend on the oil and gasoline prices, which remain volatile.

Housing market, though still weak, shows signs of stabilization. GDP growth should see an improvement, going from 0.7% in 2026 to 1.8% in 2027 and 2028.

The Canada-US-Mexico Agreement (CUSMA) is now subject to yearly reviews, which once again means uncertainty, though so far, businesses have been able to navigate around the issue, according to the Bank.

As economic uncertainty persists, the Bank is unlikely to lower the policy rate any further. That said, with inflation on its way back down to 2%, a sudden rate hike is not expected either, at least not until 2027.

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 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 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.

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 throughout 2026. 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 not only 2026 but 2027, 2028 and onwards until 2031.
• BMO: BMO expects the overnight rate to remain at 2.25% throughout 2026 and 2027, 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. However, they predict two 25-bps rate hikes in 2027, around halfway through the year and then closer to the end. ‘[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: National Bank projects that the overnight rate will hold at 2.25% until the end of 2026, while also forecasting an eventual tightening to 2.75% in the first of 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 2.75% in the second half of 2026 and then to 3.00% in 2027. Defending the forecasts, Derek Holt, vice-president and head of capital markets economics, has recently stated that he ‘wouldn’t change a thing about [Stotiabank’s]’ forecasts’ since the aim is to ‘play the long game (…) without over-reacting to the twists and turns.’
• RBC: RBC’s forecast is for the Bank’s rate to remain at 2.25% in 2026 but increase to 3.25% by the end of 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 July outlook indicates that the Bank’s 2.25% policy rate is expected to remain unchanged through summer and fall of 2026, with rate cuts in particular being unlikely. There’s still potential for rate hikes, however, as worsening U.S.-Iran tensions this July ‘continue to impact oil trade routes and affect downstream gas refining pricing.’

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