Canadian Mortgage Rate Forecast to 2027

HIGHLIGHTS

• Bank of Canada lowers rate: The Bank of Canada has dropped rates from 5% in 2024 to 2.5% in September 2025. The next opportunity for a rate drop is Wednesday, October 29th.

• Variable-rate Mortgages: Variable rates are linked to the Bank of Canada rate, and they are expected to move lock-step with the bank rate and prime rate.

• Five-year fixed-rate mortgages: The typical five-year fixed mortgage rate has decreased roughly 2% since its peak in November 2023. It is tied to bond markets, not Bank of Canada policy rate adjustments.

• Inflation vs. Trade War: Canada's core inflation rate remains at 3.0% which pressures the Bank of Canada to raise rates to combat inflation. The Bank of Canada is responsible for stabilizing prices and targets an average inflation rate of 2%. Canada's ongoing trade dispute with the United States could exacerbate inflation while also potentially triggering a recession and job losses.

The Drop That Has Toronto Cheering

The Bank of Canada dropped its key interest rate to 2.50% in September, but beneath the surface, trouble brews: core inflation (stripping volatile items like food and fuel) remains stubbornly high at 3.0%.

The Canada-China Trade Conflict

Canada and China are currently engaged in a trade conflict, with both countries imposing tariffs on key goods.

• Canada's Tariffs on China: Last year, Canada placed a 100% tariff on Chinese electric vehicles (EVs). It also imposed a 25% tax on certain steel and aluminum imports, and a 25% duty on steel from non-U.S. countries that was melted and poured in China.

• China's Tariffs on Canada: China responded by imposing a 75.8% preliminary import tariff on Canadian canola, a crucial export for Canada's agricultural sector.

A recent survey indicates a shift in Canadian public opinion, with more people now supporting increased trade with China compared to a few years ago. This may be due in part to the hope that removing the tax on Chinese EVs could lead to China lifting its tariffs on canola.

Canada Caught Between the U.S. and China

The trade conflict has become more complex due to demands from the U.S. and its President Donald Trump.

• Trump's Demands: Trump has called on all NATO countries, including Canada, to impose massive 50-100% tariffs on China. He argues this would pressure China to end its support for Russia in the war in Ukraine.

• Canada's Dilemma: According to an expert cited in the article, this puts Canada in a difficult position. Canada's own trade interests with China are at odds with the U.S.'s demand for a unified, hardline stance against China. The expert suggests that Canada's inability to "shape the environment" and its need to simply "react" highlights a lack of foreign policy influence.

Essentially, Canada is in a precarious situation, trying to navigate its own economic relationship with China while facing pressure from its major ally, the U.S., to take a much more aggressive and potentially damaging approach.

The Bank of Canada Rate Forecast: A Gentle Descent

Bank of Canada Policy Rate

Variable mortgage rates are shaped by the Bank of Canada’s policy decisions and lender risk premiums. While rates generally move in tandem with central bank adjustments, competitive pressures can cause deviations. Forecasts point to a some additional rate cuts, between 0.25% and 0.75% current levels, but caution against expectations of a return to ultra-low, pandemic-era rates.

As a result, forecasting variable mortgage rates depends on the central bank’s approach to maintaining a stable currency and encouraging economic growth.

5-year Government Bonds

The five-year fixed mortgage rate aligns closely with the yield of the five-year Government of Canada bonds, plus a risk premium reflecting the relative riskiness of mortgages. Falling bond yields suggest further rate declines, though a widening risk premium in a recessionary environment could counteract this trend.

Bond rates are currently falling, but most forecasts predict fixed five-year rates have hit a floor and will rise toward the end of 2025 and into 2026.

Sources

To develop our analysis, we’ve surveyed the most prominent Canadian banks and their forecasts.

• BMO Bank of Montreal

• C1 Central1

• CIBC

• Desjardins

• National Bank of Canada

• RBC Royal Bank

• Scotiabank

• TD Bank

Current Mortgage Rates in Canada

Recent Mortgage Rate Trends in Canada

Impact of Rates on Homebuyer Budgets

It often takes 18 months for rate cuts to ripple through the housing market.

Mortgage Rate Predictions up until 2027

Fixed-rate mortgages offer stability but come at a cost. Borrowers typically pay a premium for locking in rates over longer terms. Beyond that threshold, the extra cost for fixed-rate stability may outweigh the benefits?

Will Mortgage Rates Go Down in 2026?

Will the 5-Year Fixed Rate Fall Further?

The five-year rate is expected to begin rising in 2026 and will likely remain above 4 percent.

How much further will Variable Rates Drop?

Variable rates are expected to fall below fixed rates in the medium term, but only by a quarter of a percent to one percent. Is it worth the risk to get a slight discount?

Try our mortgage offer comparison tool to calculate the dollar difference (not percent) between two offers. Find out how much cash you’ll save with a lower rate and the potential fees that come with different choices.

In Today’s Market, Is A Fixed or Variable Rate Better?

Buying or Renewing in 2025? A 3-year fixed term is a good strategy to bridge today’s uncertainty with 2026’s projected variable rate dips. The 3-year fixed rate is roughly 0.25% lower than a variable rate and slightly lower than the 5-year fixed, and when it comes to renewal, variable rates are expected to be lower.

Eyeing variable? Discounts off prime (now 4.95%) range from 0.5–1.5%, but prepare for volatility.

Borrowers are expected to come out ahead if they opt for a variable rate. The next Bank of Canada rate announcement could be a 0.25% drop, and that would match the 3-year fixed rate in just a few months. The sticking point is that more rate reductions, while senior economists may predict them, are never guaranteed.

Pros and Cons of a 5-year Fixed Rate Mortgage

Fixed Rate Mortgage Holders Will Likely Pay More

Variable rates will likely continue their downward trend in 2025. However, the decline will be modest, likely to around 4%. If you lock in a fixed rate today at 4.4% for five years, your average mortgage interest costs will probably be higher than those of a variable-rate mortgage.

However, there are no guarantees with variable rates. If inflation starts to rise, then rates might rise with it.

Fixed Rates Offer Stability But at a Cost

A fixed-rate mortgage term provides a sense of security for those anxious about volatile mortgage rates. Locking in your rate shields you from future increases, offering peace of mind—but this stability has potential downsides.

Beware of Cancellation Fee and Penalty Risks

Variable-rate mortgages are subject to a fee of three months' interest if you break the contract term (e.g., a 5-year term).

Fixed-rate mortgage penalty fees can be higher. If you break a fixed-rate contract term, you can be charged three months of interest or a fee called the interest rate differential (IRD), whichever is higher. The IRD is often higher.

Read: Mortgage Cancellation Fees and Penalties

These are important considerations for selling or relocating in the next few years. Breaking a mortgage contract before the term ends can trigger hefty penalty fees.

Pros and Cons of a Variable Rate Mortgage

Variable Rates: Risk and Reward

Variable mortgage rates are usually lower than fixed rates because borrowers shoulder the risk of fluctuating interest rates. However, due to post-pandemic inflation, variable rates are higher than longer-term fixed rates.

However, variable rates are projected to drop to around 4 percent in 2025, still high by historical standards but lower than fixed rates.

While there is a broad consensus that variable rates will continue to fall, there is little agreement on what the “new normal” will look like or how quickly we will achieve it. Two-percent mortgage rates are unlikely ever to return.

How to Get the Best Mortgage Rate

We suggest contacting a Mortgage Broker as early as possible to lock in a rate. You can lock in your mortgage rate up to 120 days before closing on a home purchase or your mortgage renewal. Even if you’re taking a variable-rate mortgage, you can begin to negotiate the discount on your variable rate.

The average discount on prime for variable rate mortgages in Canada ranges from 0.5% to 1.5%, depending on the term and other factors.

Variable rate details :

• 3-year term: Discounts range from 0.15% to 1.50% from the prime rate

• 5-year term: Discounts range from 0.50% to 1.50% from the prime rate

Further Reading: Our mortgage renewal guide that will help you navigate the process.

Is it a better time to Buy or Sell a home?

More economic factors are on balance, putting downward pressure on home prices than upward pressure. However, the same could have been said during the pandemic. Markets do not always follow the logic of economic fundamentals.

Homebuyer Advice

While rates are falling, they’re still higher than the pre-pandemic 10-year average. Higher mortgage rates have shrunk the buying power of those dreaming of a bigger home. If you’re one of them, it’s time to take a hard look at your budget and adjust your expectations accordingly.

Home Seller Advice

Are you thinking of selling? Now might be the best time. Property markets in many Canadian cities are cooling because mortgage costs and higher home prices have priced many buyers out of the market.

The first half of the year typically favours sellers, and between now and January, the market typically favours buyers. If you’re in a market where prices are falling, price declines could accelerate in the second half of the year. While waiting until Spring might bring more people to your open house, by springtime, the value of your home might have dropped 2 to 10%. In these weaker markets, it could take years to recover to current prices.

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Canadian Real Estate Forecasts

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