Canadian Mortgage Rate Forecast 2025

Canadian mortgage rate forecast 2025

There are so many question marks when it comes to mortgage rates in 2025.

Thus far, mortgage rates have been trending downward, following a steady decline throughout most of 2024 and into early 2025, in tandem with easing inflation.

A critical question is how U.S. President Trump’s tariffs on Canadian goods—along with Canada’s retaliatory counter-tariffs—will influence Canadian mortgage rates. Will rates rise, stabilize or continue their downward trajectory?

By analyzing the available data, we can outline potential scenarios about where rates might be headed.

Bank of Canada’s policy rate cuts and the prime rate

On June 4, 2025, the Bank of Canada maintained its overnight target rate (also known as policy rate, key interest rate, or simply as the target rate) at 2.75%. The rate was last adjusted on March 13, 2025, which was a reduction of 25 basis points (bps) from the previous rate, set in January.

The prime rate from Canada’s Bix Six banks (TD, RBC, CIBC, BMO, Scotiabank and National Bank) currently sits at 4.95%, remaining unchanged from March. It’s typical for the Big Six to have identical prime rates and for the rates to follow the same trajectory as the Bank of Canada’s policy rate (this is true of variable rate mortgages as well).

A notable exception is TD Bank, which actually has two prime rates:

• TD Prime: This rate applies to TD Flexline mortgage product (mortgage + Home Equity Line Credit or HELOC) and other lines of credit. It is currently 4.95%.
• TD Mortgage Prime (TDMP): This applies to stand-alone variable rate mortgage only (i.e., a home equity line of credit or HELOC are not attached to the mortgage). It is currently 5.10%.

Where things are going

The Bank of Canada has made it clear that it has limited tools to directly address the effects of a trade war, as those decisions fall under fiscal policy. However, its main goal remains to prevent rising prices from turning into long-term inflation.

The Bank of Canada has decided to hold interest rates steady this June, citing a mixed bag of economic signals. While inflation remains under control, it’s starting to creep upward. Core inflation, a key measure that strips out volatile items like food and energy, has climbed above 3%—exceeding the Bank’s 2% target. Governor Tiff Macklem acknowledged that inflationary pressures might be 'a little firmer than we thought.'

On the growth front, Canada’s economy expanded at an annualized rate of 2.2% in the first quarter, outpacing expectations. However, much of this growth is attributed to businesses ramping up imports in anticipation of potential U.S. tariffs—a temporary boost rather than a sign of sustained momentum—and growth is forecasted to stall in the second half of the year as the trade war deepens.

Looking ahead, the Bank faces new challenges. Global factors, such as potential oil price spikes stemming from strikes in Iran, could push inflation higher. Meanwhile, in the U.S., President Trump’s proposed 'One Big Beautiful Bill' could shake up financial markets by driving up Treasury bond yields, which may have ripple effects on Canada’s economy.

For now, Canada’s economic outlook remains stable, though not without its challenges. Growth has softened, but it hasn’t taken a sharp downturn. While Trump has eased off the threat of steep tariffs on Canadian goods, the cost of cross-border trade is still higher than it was before his presidency. Adding to the uncertainty is the lack of clarity around U.S. trade and foreign policy.

In this environment, the Bank of Canada, much like the U.S. Federal Reserve, is adopting a cautious 'wait-and-see' approach, keeping a close eye on how U.S. policies might impact Canada’s economy. In late June, the Federal Reserve held interest rates steady at 4.25% to 4.5% for the fourth consecutive meeting, though two rate cuts are widely anticipated before year-end.

Currently, the banks differ in their forecasts. TD Bank and CIBC anticipate a rate drop of 25 bps in summer, and an additional drop of 25 bps in the fall, leaving the overnight rate to sit at 2.25% by the end of the year.

BMO forecasts three rate cuts—one each in July, October, and January—bringing the policy rate to 2.00%.

Scotiabank and RBC, however, suggest that the Bank of Canada may hold rates steady for the remainder of the year.

Initially, we anticipated the Bank of Canada would implement four 25-bps rate cuts this year. However, that now seems unlikely. At this point, we expect, at most, two rate cuts before the year is over, leaving the rate to sit at 2.25%.

Mortgage market trends: the view from the inside

Purchase transactions and refinances are slowing down, but mortgage renewals are thriving. Over one million Canadian homeowners are renewing their mortgages this year, according to the Canada Mortgage and Housing Corporation, and lenders are fiercely competing to retain existing clients or attract new ones with competitive renewal offers.

The best deals right now are on insured mortgages. Posted rates hover between 4.5% and 5%, while brokers are offering no-frills options in the 4.35% to 4.09% range. However, even with anticipated rate cuts, mortgage rates aren’t expected to drop much further. For homeowners struggling with housing affordability, relief in the form of lower interest rates seems increasingly out of reach—especially in the wake of ongoing trade tensions.

Young adults, once optimistic about homeownership, are stepping back. A key factor in this decision is the unemployment rate. Young people and young families often face challenges borrowing if they’re newly employed, have limited employment history, or are currently unemployed.

With Canada’s unemployment rate sitting at 7%—a multi-year high—job security has become a growing concern in 2025. This level of unemployment not only impacts borrowing power but also adds uncertainty for those looking to enter the housing market.

As for young adults with career and financial stability, they’re finding out that they can’t qualify for sufficient financing and that renting costs half as much as owning. Even if rates decrease by 0.50% or 1.00%, many mortgage-seekers are discovering that owning a home isn’t affordable at today’s prices. As a result, some families are leaning toward renting, valuing the flexibility it offers for their cash flow.

The GTA condo market, in particular, is losing its appeal. A mere 5% drop in value could leave many homeowners and real estate investors underwater on their mortgages, and with a glut of inventory on the market, recovery could take years. Adding to the challenge, there are still numerous projects slated for completion over the next five years.

The once-dominant fear of missing out has been replaced by a new anxiety: the fear of overpaying.

Variable rate forecast 2025

Interest in variable-rate mortgages picked up earlier in 2025, after the Bank of Canada’s rate cuts. However, that momentum has faded as consumer confidence has taken a hit.

The future of variable rates will largely depend on the discounts offered off the prime rate. Right now, many brokers are offering variable mortgage rates at prime minus 0.8%—well below the posted rates. If the Bank of Canada cuts the benchmark rate by 25 bps in July, the prime rate is expected to follow suit. However, if economic conditions worsen (due to a recession, for instance), lenders’ operating costs could increase, leading to lower profit margins, and as a result, reduced discounts for consumers.

Looking ahead to the Bank’s July 30 announcement, a rate cut could still leave variable rates less attractive. With thinner discounts and economic uncertainty, many homeowners are steering clear of the gamble that variable rates represent—especially in a volatile environment shaped by Trump-era trade policies.

Given that variable rates are closely tied to prime rates, variable mortgages may drop by another 50 bps by the end of 2025. That would equal to a cumulative decrease of 100 bps this year. Here's what that might look like:

Note: These projections are highly speculative. They may change based on a variety of economic factors, including inflation. In addition, the rate you qualify for could be higher or lower than the offers above based on your individual circumstances.

2025 interest rate predictions from experts

Predictions for Canadian mortgage rates vary among experts in periods of relative stability. Making forecasts in 2025 is distinctly more complex. A major factor contributing to this is the unpredictable nature of the U.S. economy and politics (under President Trump).

That said, the general consensus now is that mortgage rates are poised to continue decreasing should inflation remain around 2%. Here's what economists at the leading Canadian financial institutions have to say:

TD Bank: If we go by TD’s latest forecast tables, Canada’s overnight target rate is expected to fall to 2.25%, a reduction of 50 bps from the current rate.

BMO: BMO’s prediction is that after a series of cuts, the Bank of Canada’s target rate should go down to 2.5% by the middle of 2025—though there is a chance of even more aggressive cuts due to tariffs, down to 1.5% by the end of the year.

CIBC: CIBC posits that 40% of mortgage renewals will see lower payments in 2025, with an additional 10% seeing an increase of less than 10%. Its overnight rate prediction remains 2.25% by the end of the year, despite the threat of the trade war.

True North Mortgage: True North Mortgage predicts that the benchmark rate has more room to decline this year, due to the impact of tariffs on the economy. Like many other financial institutions, its overnight prediction is 2.25% by the end of 2025, with the Bank making its final cut for the year in the third financial quarter.