Canadian Mortgage Rate Forecast to 2028

HIGHLIGHTS

• Rate Drops Paused: The Bank of Canada (BoC) maintains a 2.25% policy rate, unchanged since October. This sits at the lower bound of the neutral range. After a 1% reduction in 2025, the Bank has shifted to a data-dependent holding pattern. The next rate announcement is on Wednesday, April 29.

• Geopolitical & Trade Risks: The BoC notes an expanded range of economic outcomes due to global instability. Increased trade uncertainty and regional conflicts, specifically in the Middle East and Ukraine, act as a "critical link" that keeps inflation high while stifling business growth, limiting the Bank's ability to ease policy.

• Pressure to Raise Rates: Trade tensions, U.S. tariffs, and uncertainty created by wars (Middle East, Ukraine) create "inflationary shocks." These could force rate hikes even during a Canadian recession.

• Pressure to Lower Rates: The Canadian economy contracted slightly at the end of 2025, and persistent manufacturing weakness supports further rate cuts.

• Mortgage Outlook: Fixed mortgage rates are expected to rise slightly amid volatility in the government bond market caused by high government debt and various international conflicts. Variable mortgage rates are expected to remain stable until at least mid-2026. The question for borrowers is, “When will variable rates begin to rise?”

Significant declines in mortgage rates are unlikely without a major economic downturn.

Following a series of rate reductions in 2025, the Bank of Canada has stepped back to reassess. With its key policy rate at 2.25 percent, the focus is now on how quickly and reliably inflation returns to the 2 percent target amid slower growth and heightened uncertainty. For Canadian borrowers, understanding this balance between inflation risk and economic softness is essential when making mortgage decisions through 2026 and into 2028.

This forecast draws on the latest economic data and major bank projections to help you navigate the current rate environment.

The Canada-China Trade Context

Following Prime Minister Mark Carney’s four day visit to Beijing, Canada entered a new strategic partnership with China, signalling a major push to diversify trade away from an 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 determine our own path and establish our own rates, ensuring that no single trade partner has 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, and the central bank is now clearly in “wait and see” mode while it monitors how inflation responds to a weaker economy.

Its primary task is to ensure inflation is durably under control before it considers further policy easing. With core measures still sticky and tariff and trade-related risks elevated, the Bank is reluctant to offer a firm timeline for its next move and instead emphasizes its reliance on incoming data, especially monthly inflation data releases and labour market indicators.

At the same time, the BoC has signalled 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 more two-sided than it was in 2025.

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.

As inflation has cooled from earlier peaks and markets have priced in the current BoC pause, 5-year bond yields have pulled back from their highs and stabilized. Most forecasts suggest that, barring a major surprise, 5-year bond yields are likely to trade in a relatively narrow range through 2026, which in turn anchors the base for 5-year fixed mortgage rates.

A meaningful upside surprise in inflation or a shift toward more aggressive BoC tightening could push bond yields and fixed rates higher. Conversely, a clear downturn in growth or a negative shock that raises recession risks could pull them lower.

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.

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 peak and is not projected to decline substantially further without a major negative economic shock. It is more likely to hover near current levels, with modest fluctuations driven by moves in the bond market as new data arrive.

Bond markets have largely priced in the BoC’s pause and the expected path of inflation. A persistent or renewed inflation surprise could push fixed rates higher, while a sharp downturn in growth and employment would be needed to move them materially lower.

How much further will variable rates drop?

Based on what we know today, little is expected to change. Variable mortgage rates are closely linked to the Bank of Canada's (BoC) policy rate, meaning they are directly influenced by the central bank's efforts to combat inflation. With the BoC currently on hold and cautious about inflation risks stemming from tariff shocks and trade tensions, variable rates are anticipated to remain relatively stable in the near term.

Borrowers should not rely on a repeat of the savings from rate cuts that occurred in 2025. The risk profile has changed. While further cuts are a possibility, they would necessitate a significantly weaker economy. Conversely, if inflation resurges, the BoC might have to consider raising rates again by 2027, even with a weak labour market.

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?

For buyers and renewers in early 2026, the strategic choice remains nuanced.

• 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. This can be a prudent choice if you prefer certainty and stable borrowing costs.​ While the variable rate is expected to remain lower than the 5-year fixed rate for the next year and a half, if variable rates embark on an upward trajectory, the locked-in 5-year fixed rate will be cheaper than the variable rate over the remaining three and a half years.

• The case for variable: A variable rate typically offers a lower starting rate and the possibility of lower payments if the BoC eventually cuts again. You need to accept the risk that payments could rise if inflation persists or reaccelerates and the Bank has to tighten, which makes this better suited to borrowers with strong cash flow and flexibility.​ As well, consider that most analysts believe the BoC rate is near the bottom of this rate-cutting cycle. Without a recession, variable rates could drop a little more or remain flat, but they are not expected to drop significantly.

• 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 time of renewal in 2029, there should be more visibility on how inflation, trade policy, and economic growth have evolved, allowing for a more confident choice at that point.

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 mortgage are usually limited to three months of interest, which is often far less than an IRD penalty on a fixed mortgage.

Payment uncertainty: There are two types of variable-rate mortgages: a standard variable-rate mortgage (VRM) and an adjustable-rate mortgage (ARM). With an ARM, your monthly payment can increase at any time, sometimes significantly, if the Bank of Canada (BoC) raises interest rates. In contrast, with a VRM, if you struggle to keep up with loan balance repayments due to rising costs, your payments will be adjusted at renewal to help you get back on track, which may lead to a significant increase in your payments. It is important to ensure that your budget has enough flexibility to accommodate potential increases in payments.

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. While inflation was stable and low between 2010 and 2020, that is no longer the case.

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 for a competitive rate and terms. If your current lender thinks you’re shopping around, they often offer you a better rate to stay competitive.

2. Negotiate your discount: For variable rates, the posted “prime minus” discount is often negotiable. Do not accept the first offer without asking your broker or lender to sharpen the pricing. Also, be aware that not all banks link their variable-rate mortgages to the Bank of Canada prime rate. Some, like TD Bank, link them to their own internal prime rate, which they control, and that rate is often higher than the Bank of Canada prime rate.

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 percent of your income. With the other ~40 percent going to the government in taxes, that leaves 20 percent of your total pre-tax earnings for food, transportation, entertainment, daycare, and vacations.

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.

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