Canadian Mortgage Rate Forecast to 2028

The Bank of Canada pauses, but higher borrowing costs are coming – what buyers and owners should do now

HIGHLIGHTS

• Rate Paused, But No Longer Falling: The Bank of Canada is all but certain to leave its policy rate at 2.25% on April 29. The rapid cutting phase of 2025 is over. The Bank is now in a “wait and see” mode, with the next move likely to be a hike, not a cut.

• Geopolitical & Energy Shock: The military conflict in Iran has shut most of the Strait of Hormuz, removing roughly 10% of global oil supply. West Texas Intermediate crude has jumped from US$75 to nearly US$100 per barrel. This supply shock is raising headline inflation while weighing on growth – a stagflationary mix that limits the Bank’s ability to ease.

• Pressure to Raise Rates: Scotiabank expects three rate hikes in the second half of 2026. TD notes markets have priced in at least one increase. Even if the Bank holds this year, “inflation‑related anxiety” could force tightening in early 2027.

• Pressure to Lower Rates? The Canadian economy contracted in Q4 2025 and lost roughly 100,000 jobs in early 2026. Weak demand argues against hikes – but the Bank’s primary mandate is inflation, and energy prices are pushing that higher.

• Mortgage Outlook: Fixed rates have already risen 35‑40 basis points since the conflict began. They will stay elevated or drift modestly higher. Variable rates will remain stable for a few more weeks, then begin to rise in late 2026. Significant declines in mortgage rates are unlikely without a deep recession.

Bank of Canada Overnight Rate

Following a series of reductions in 2025, the Bank of Canada has stepped back to reassess. With its key policy rate at 2.25%, the focus is now on how quickly and reliably inflation returns to the 2% target amid a major oil shock and slowing growth. Unlike 2022, today’s economy has surplus slack – unemployment is rising, population growth is slowing, and final domestic demand is soft. That gives the Bank room to “look through” a temporary spike in inflation. But if higher energy prices persist and bleed into core measures, the next move will be a hike. For Canadian borrowers, the era of falling rates is over. The question is not whether rates will rise, but when and by how much.

This forecast draws on the latest economic data and projections from major banks and credit unions like Desjardins, Scotiabank, National Bank, RBC, and TD.

The Canada-China Trade Context

Following Prime Minister Mark Carney’s four-day visit to Beijing, Canada entered into a new strategic partnership with China, signalling a major push to diversify trade away from overreliance on the United States. In January 2026, the two countries reached a preliminary agreement to ease certain trade restrictions, including lower Canadian tariffs on a quota of Chinese electric vehicles and reduced Chinese tariffs on key Canadian agricultural exports such as canola, lobster, and peas.

This strategy is intended to cushion Canada against U.S. trade volatility while demonstrating that Canadian exporters have alternatives to the American market. At the same time, the government is pursuing investment deals with partners such as the U.A.E. and considering major defence procurement from Sweden, decisions that could reshape trade and investment flows but also create new friction points with U.S. policymakers ahead of USMCA renegotiations.

These developments are important because our current reliance on exports to the US has made us vulnerable to tariffs that can be used as a tool for economic pressure. By diversifying our trade relationships, we can chart our own path and set our own rates, ensuring that no single trade partner exerts excessive influence over us.

The Bank of Canada Rate Forecast: A Pause for Assessment

Bank of Canada Policy Rate

The BoC’s current stance is one of cautious stability. The rapid rate-cutting phase of 2025 has ended. At its April 29 meeting, the Bank will almost certainly hold at 2.25%. The central bank is now in “wait and see” mode, monitoring how the oil shock affects both inflation and growth.

Its primary task is to ensure inflation expectations remain anchored. With energy prices up sharply and trade uncertainty still high, the Bank is reluctant to signal any future cuts. In fact, several major forecasters now expect the next move to be a hike. Scotiabank predicts three rate increases in the second half of 2026. TD notes that markets have priced in at least one hike. National Bank, while expecting no move in 2026, admits that “inflation-related anxiety” could force a tightening in early 2027.

The BoC has made clear that if inflation pressures reaccelerate, it is prepared to raise rates again even if growth remains soft. All of this means the balance of risks around the policy rate is now skewed toward higher rates, not lower.

5-year Government Bonds

The direction of fixed mortgage rates is closely linked to the yield on the 5-year Government of Canada bond. These yields reflect market expectations for growth, inflation and future central bank policy.

Since the Iran conflict began, 5-year bond yields have risen by 0.35 to 0.40 percent. Even after a two-week ceasefire in early April, yields remain well above pre-conflict levels. Most forecasts suggest that bond yields will remain in the 3.0% to 3.5% range through 2026, with an upward bias. A prolonged conflict or a re-escalation could push yields toward 3.75% or higher, directly lifting 5-year fixed mortgage rates.

A meaningful downside surprise in inflation or a sharp recession could pull yields lower, but that is not the base case.

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 about 18 months for rate changes to ripple fully through the housing market, affecting both prices and buyer behaviour. If you are planning to buy, act before rates rise further.

Mortgage Rate Predictions Through 2028

Will the 5 year fixed rate fall further?

This is unlikely under the current outlook. The typical 5-year fixed mortgage rate has already fallen significantly from its 2023‑2024 peak, but it is not projected to decline substantially further without a major negative economic shock. Bond markets have largely priced in the BoC’s pause and the oil shock. A persistent or renewed inflation surprise would push fixed rates higher, while a sharp downturn in growth and employment would be needed to move them materially lower. Neither is the base case.

How much further will variable rates drop?

Based on what we know today, very little. Variable mortgage rates are closely linked to the Bank of Canada’s policy rate. With the BoC on hold and inflation risks tilted upward, the central bank will not cut again unless the economy falls into a deep recession. The risk profile has changed: further cuts are a remote possibility, but rate hikes are now the more probable outcome for 2026‑2027.

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.

Fixed vs. Variable: Which is better now?

• The case for fixed: A 5-year fixed rate offers predictability at a time of elevated uncertainty. It shields you from potential future rate increases over a meaningful horizon and makes budgeting easier. With fixed rates already up but still below what they could become if the BoC hikes several times, locking in today’s rate is a prudent choice for those who prefer certainty.

• The case for variable: A variable rate typically offers a lower starting rate, currently about 0.50% below fixed rates. You need to accept the risk that payments could rise if inflation persists and the Bank raises its policy rate. This suits borrowers with strong cash flow and flexibility. However, most analysts believe the BoC rate is near the bottom of this cycle. Without a recession, variable rates are likely to remain flat, though they are not expected to drop meaningfully. And if they rise, the gap with fixed rates will close quickly. Two rate hikes will push the variable rate mortgage above the 5-year fixed rate that you could lock in today.

• A strategic middle ground: A 3-year fixed term continues to appeal as a compromise. It provides medium‑term stability while keeping you closer to the point where the rate path may be clearer. By the 2029 renewal, there should be greater visibility into how the Middle East conflict, trade policy, and economic growth have evolved.

Pros and cons of a 5-year fixed-rate mortgage

• Stability and budgeting: Your principal and interest payment is locked in and insulated from BoC rate hikes for five years. This is the main benefit for peace of mind.

• Protection from inflation: If inflation picks up and forces rates higher, you are protected for the duration of your term.

• Higher cost for security: You usually pay a premium for this stability compared with the initial rate on a variable mortgage.

• Costly to break: Breaking a fixed rate mortgage before the end of the term can trigger a significant penalty, often calculated as an Interest Rate Differential (IRD). This makes fixed terms less flexible if you plan to sell or refinance early.

Read: Mortgage Cancellation Fees and Penalties

Pros and cons of a variable rate mortgage

• Lower initial rate: Variable rates typically start lower than fixed rates, which can save you money upfront.

• Payment decreases with cuts: If the BoC lowers its policy rate, your interest costs and often your payment will fall.

• Lower penalty to break: Penalties for breaking a variable-rate mortgage are usually limited to three months of interest, which is often far less than the IRD penalty on a fixed-rate mortgage.

• Payment uncertainty: With an adjustable-rate mortgage (ARM), your monthly payment can increase at any time if the BoC raises rates. With a standard variable-rate mortgage (VRM), payments may stay fixed, but the portion going to interest rises, extending your amortization. Ensure your budget has enough flexibility to accommodate higher costs.

• Exposure to inflation risk: Your borrowing cost is directly tied to the central bank’s response to inflation. Persistent inflation means higher rates and higher payments. The era of stable low inflation (2010‑2020) is behind us.

How to Get the Best Mortgage Rate

1. Start early and use a broker: Contact an accredited mortgage broker about 120 days before your closing or renewal date. They have access to many lenders and can negotiate on your behalf. If your current lender thinks you are shopping around, they often offer a better rate to keep you.

2. Negotiate your discount: For variable rates, the posted “prime minus” discount is often negotiable. Do not accept the first offer. Also be aware that not all banks link their variable-rate mortgages to the Bank of Canada prime rate. Some, like TD Bank, link to their own internal prime rate, which they control and which is often higher.

3. Consider more than the rate: The interest rate matters, but so do contract features such as prepayment privileges, portability and penalty calculations, especially for fixed-term mortgages.

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

Is it a better time to buy or sell a home?

The higher-rate environment has cooled many Canadian housing markets and almost eradicated the bidding wars that were typical earlier this decade.

Advice for Homebuyers

Your purchasing power is determined by today’s rates, not the low-rate era of 2020. Be realistic about your budget and secure a solid pre-approval to lock in a rate while you shop. Focus on homes you can comfortably afford under the stress test rather than stretching to the maximum possible amount.

Keep in mind that the bank will qualify you for an amount they believe will keep you out of bankruptcy, not for a comfortable monthly payment. Lenders will allow mortgage payments to take up almost 40% of your income. With another 40% or so going to taxes, that leaves roughly 20% of your total pre-tax earnings for food, transportation, entertainment, daycare and vacations. Borrowing to the maximum can leave you house-rich but with a poor quality of life.

Advice for Home Sellers:

The “list it, and it sells” phase is behind us. Pricing your home correctly from the start is critical to attracting serious buyers. Work with an agent who understands how current financing costs are affecting demand in your neighbourhood.

Well-presented, fairly priced homes are still selling. Overpriced listings are sitting on the market.

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