Canadian Mortgage Rate Forecast 2026

Canadian mortgage rate forecast 2026

Canada’s economy is proving to be remarkably resilient — with real GDP growing 0.8% in the second quarter after posting just 0.1% growth in the first quarter — but that resilience is playing out against the rising risk of inflation broadening beyond oil prices.

For now, Canada's growth is giving the Bank of Canada (BoC) leeway to wait and see how Middle Eastern energy prices and tariff uncertainty play out. As a result, the Bank announced it is holding rates at 2.25% during its Sep. 2 announcement.

Rates for variable mortgages are expected to remain steady. Most of the Big Six banks expect the BoC to hold at 2.25% through the end of 2026, though Scotiabank is an outlier, projecting a rise to 2.50% in December.

Fixed mortgage rates are another story. Sustained uncertainty over the Middle East conflict and U.S.-Canada trade tensions has caused BoC bond yields to climb — which lenders use to price fixed mortgages rates. Expect fixed rate mortgages to continue drifting upwards for the remainer of 2026.

How the Bank of Canada impacts prime and mortgage rates

The BoC'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 base case for interest rates among most economists at Canada's large financial institutions is that they will remain at 2.25% for the remainder of 2026. The outlook beyond that is uncertain. There are cases for a cut or a hike, depending on how macroeconomic events play out.

The BoC cited that tariffs "make growth prospects more uncertain," pointing towards weakness in the economy and a possible rate cut. It also flagged high energy prices and tariffs as having the potential to "feed into consumer prices over time," pointing toward inflation and a possible hike.

At the moment, the BoC believes inflation is controlled. The Consumer Price Index (CPI) was 3% in August – which is the BoC's ceiling for acceptable inflation — due to increased Middle Eastern energy prices. But, stripping out energy costs, the BoC’s preferred core measures – CPI-trim and CPI-median – came in at 1.9% and 2.0%, respectively. The BoC maintains that this is evidence that inflation hasn't spread to other sectors but acknowledges that the risks have grown.

Canada’s GDP has also weathered several new realities remarkably well – including U.S. tariffs and slowed population growth – and snapping back in Q2 2026. Real GDP grew by 0.8% last quarter, after contracting in Q4 of 2025 and posting low growth in Q1 2026. The unemployment rate has remained in the 6%-7% range since late 2024, sitting at 6.4% as of July (a 0.1% decrease over the previous month).

However, bond yields are rising globally, which complicates the narrative. Bond yields – which fixed mortgages follow — affect the cost of long-term borrowing. This means fixed rates could drift higher even with the policy rate on hold.

Trade remains a threat, according to the BoC's outlook: it warned that "threats of further action pose risks to the sustainability of the recovery."

As economic uncertainty persists, the BoC is signaling that it's staying vigilant for clear signals that inflation is worsening. Until they manifest, the BoC is unlikely to change the policy rate in 2026. If the situation does change rapidly, then it would seem that indicators all point to the BoC being more likely to hike rates. 

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 BoC'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.

However, if inflation rises sharply – whether due to persistent energy prices or tariff pass-through — the BoC may hike rates, sending variable rates higher. It’s also worth noting that while the BoC’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 conflicts in the Middle East, tariffs, and a labour market where hiring has slowed.

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% below — meaning that catastrophic rate increases are unlikely. Even so, 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.

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 BoC’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 BoC monitors GDP growth to assess the overall health of the economy. If the economy grows too quickly it risks overheating, and the BoC 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 BoC 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 BoC 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 BoC 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 2026 and into 2031, though distant-year calls are likely to be revised. 
• BMO: BMO expects the overnight rate to remain at 2.25% through the end of 2026, aligning with the broader ‘hold’ camp. Michael Gregory, deputy chief economist, says the combination of decent GDP growth, plus tame core inflation, and the ongoing energy price pressure and a trade war with the U.S. mean the Bank will stay put.
• CIBC: CIBC’s  forecast also shows the overnight rate holding at 2.25% through the end of 2026, matching TD and BMO. As for what happens next? Avery Shenfeld, chief economist, sees the risks as symmetrical: if the U.S. and Canada end the trade war, it clears a path for the BoC to hike a few quarters from now; if the trade war continues, there’s a path for an eventual cut, as Shenfeld expects the resulting drag on the economy will outweigh one-time price bump from tariffs. 
• National Bank: The overnight rate will hold at 2.25%, as the BoC won't react right away to new hazards. However, risks related to U.S. trade have grown and so has the possibility that the BoC may cut rates eventually.
• Scotiabank:  The consensus among Scotiabank’s economists is markedly different than its peers. The bank forecasts that the overnight rate will go up to 2.50% in December 2026, followed by two hikes in 2027. Derek Holt, vice-president and head of capital markets economics, contends that Canada’s economy is stronger than media portrayal (growth is up, slack is shrinking) and inflation is ticking up. The U.S. Federal Reserve may also stay hawkish, and the BoC is likely follow its trajectory.
• RBC: The BoC’s key interest rate will remain at 2.25% in 2026, write economists Nathan Janzen and Claire Fan. Current tariffs — and counter tariffs — aren't enough to derail Canada's economy, but escalation could delay a 2027 hike (which they previously forecasted) or could push the bank to cut rates (which they say would be a more worrying outcome).
• True North Mortgage: The base case is that the policy rate will remain stable through to Q1 2027, writes CEO Dan Eisner. Canada's performance on key economic metrics, plus all the global uncertainty, mean that a rate change in either direction isn’t merited. Eisner assigns a 15% probability to a hike sometime next year and 5% to a cut.  

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