Canadian Mortgage Rate Forecast to 2027

Last Updated March 20, 2025.

HIGHLIGHTS

• On March 12, 2025, the Bank of Canada (BoC) reduced its policy rate by 0.25%, bringing it down to 2.75%. This marks the seventh rate cut in a year, totaling a 2.25% decrease from the peak of 5%. The rate is now within a "neutral range."

• This change directly affects variable-rate mortgages. The next Bank of Canada rate announcement is scheduled for Wednesday, April 16, 2025.

• Five-year fixed mortgage rates peaked in November 2023 and have since decreased by over 1%. However, they do not move lockstep with the Bank of Canada's rate adjustments.​

• The recent rise in Canada's annual inflation rate to 2.6% in February 2025 adds complexity to the economic landscape, potentially influencing future monetary policy decisions.

• Canadian trade wars with China and the United States have cast a long shadow over the future of Canada’s economic growth and job security.

The Fight Against Inflation and External Economic Pressures

The recent uptick in inflation, reaching an eight-month high of 2.6% in February 2025, has introduced new challenges for the Bank of Canada. This increase, partly due to the end of a sales tax break and broad-based price rises, marks the first time in seven months that inflation has exceeded the 2% midpoint of the Bank's target range.

This inflationary pressure complicates the economic situation amid the ongoing U.S. and Chinese trade wars. The Bank of Canada's recent rate cut to 2.75% reflects efforts to stimulate the economy in the face of these challenges. However, the rise in inflation may lead the Bank to reconsider the pace and extent of future rate cuts.

The evolving trade tensions and their impact on Canada's economic stability continue to influence business and consumer confidence, potentially affecting investment decisions and the housing market.

Current Mortgage Rates in Canada

Recent Mortgage Rate Trends in Canada

During strong economic growth and rising inflation, central banks raise interest rates to cool down the economy and curb inflation. This is called the “tightening phase” of the interest rate cycle. The last tightening phase was from 2022 to 2023.

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

Following the policy rate’s peak at 5% in mid-2023, the full effects of subsequent reductions may not materialize until late 2026 or beyond.

Mortgage Rate Predictions for Each for 2025, 2026 and 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 the 5-year Fixed Mortgage Rate Go Down in 2025?

The five-year rate is expected to fall in 2025 but will likely remain above 4 percent.

Will the Variable Mortgage Rate Drop in 2025?

Variable rates are expected to be lower than 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.

Should You Lock in Your Mortgage Rate Now or Wait?

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 around 4%. If you lock in a fixed rate today at 4.6% 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.

What Factors Influence Mortgage Interest Rates?

Economic forecasts, while informative, are not infallible predictions; they rely on models underpinned by assumptions. These assumptions vary, leading to differing outcomes, which is why Mortgage Sandbox offers a spectrum of projections alongside an average forecast for clarity.

The Bank of Canada’s role in shaping these forecasts is pivotal. Its guidance on policy rates often exerts more influence on predictions than underlying economic fundamentals such as GDP growth or employment trends. This is because central bank signals shape market expectations and guide lending behaviour. Economists frequently adjust their models to align with the Bank’s stated intentions, reflecting its significant sway over financial conditions.

Moreover, the U.S. economy, as Canada’s largest trading partner, exerts a substantial impact. U.S. economic growth, job creation, and interest rate movements ripple across the border, influencing Canadian exports, investment flows, and even domestic monetary policy. Consequently, Canadian forecasts must account for cross-border dynamics as well as local economic conditions.

Inflation and Interest Rates

Further Reading: Why Is the Bank of Canada Lowering Your Borrowing Costs?

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 they are expected to hit a floor in 2025.

Bank of Canada Policy Rate

Variable 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 gradual descent from 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.

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

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

If you plan to buy a home within the next three years, be aware of the possibility of short-term price drops. Falling prices can make it harder to get financing, especially if your purchase completion date is more than a few months away.

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, but the first half of the year typically favours sellers, and if there’s a major price drop due to the trade wars, it could take years to climb back up to current prices.

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