Navigating the Canadian mortgage landscape in 2025 requires a keen understanding of the shifting economic tides. Here’s a breakdown of the latest trends shaping mortgage rates:

 

Key Factors Influencing Mortgage Rates in Canada

 

• Bank of Canada’s Monetary Policy:
  • The Bank of Canada’s decisions regarding the overnight lending rate remain the primary driver of variable mortgage rates. Recent adjustments by the Bank of Canada, reflecting efforts to manage inflation and stimulate economic activity, have directly impacted these rates.
  • It is worth noting that the relationship between the Bank of Canada’s overnight rate and the prime lending rates of Canada’s big banks, is very close.
• Bond Yields and Fixed Rates:
  • Fixed mortgage rates are closely tied to government bond yields. Fluctuations in these yields, influenced by investor confidence and economic forecasts, play a significant role in determining fixed-rate trends.
• Competition Among Lenders:
  • A notable trend in early 2025 is the heightened competition among major Canadian banks. This has led to a “mortgage rate war,” with lenders aggressively slashing rates to attract borrowers, particularly during the crucial spring homebuying season.
• Economic Uncertainty:
  • Global economic uncertainties, including concerns over potential trade disputes and fluctuations in international markets, continue to contribute to market volatility, impacting both fixed and variable rates.

 

Current Trends

• Variable vs. Fixed Rates:
  • With the Bank of Canada’s recent rate adjustments, variable mortgage rates have, once again, become increasingly attractive to some borrowers. However, the inherent volatility of these rates means they carry a degree of risk. (See below for the latest history chart of the BOC’s rate drops since June 2024)

• • Conversely, while fixed rates offer stability, they are also subject to market fluctuations (something you do not necessarily need to worry about while already locked into a fixed term mortgage). Currently, there is a very competitive market for fixed-rate mortgages.
• Lender Competition and Special Offers:
  • Major banks are actively competing for market share, resulting in significant rate reductions and special offers. This presents opportunities for homebuyers to secure favorable mortgage terms.
  • It is very important for potential home buyers to use a mortgage broker to shop around, and compare the rates offered by different financial institutions.
• The Mortgage “Stress Test”:
  • It is very important to remember that all federally regulated financial institutions in Canada, utilize the mortgage stress test. This test is designed to ensure that borrowers can still afford their mortgages if interest rates rise (mortgage switches/transfers being the new exception to this rule)

 

Understanding the Impact of Tariffs and Trade War on Mortgage Rates in Canada

The ongoing global trade tensions, particularly those involving major economies like the United States and China, have indirect but significant implications for Canadian mortgage rates. Here’s how:

• Impact on Economic Growth:
  • Trade wars and tariff implementations disrupt global supply chains and create uncertainty in international markets. This can lead to a slowdown in economic growth, both globally and within Canada.
  • A weaker Canadian economy may prompt the Bank of Canada to lower interest rates to stimulate growth. This, in turn, can push down variable mortgage rates.
• Bond Yield Fluctuations:
  • Trade uncertainties often lead investors to seek safe-haven assets, such as government bonds. Increased demand for these bonds can drive yields down.
  • As fixed mortgage rates are closely linked to bond yields, a decline in yields can result in lower fixed mortgage rates.
• Inflationary Pressures:
  • Tariffs can increase the cost of imported goods, leading to inflationary pressures. If inflation rises, the Bank of Canada may be forced to raise interest rates to control it, which would push mortgage rates higher in Canada.
  • The Bank of Canada is very concerned with inflation, and any large increases in inflation, will almost certainly cause the bank to increase the overnight lending rate.
• Canadian Dollar Impact:
  • Trade disputes can affect the value of the Canadian dollar. A weaker dollar can increase import costs and contribute to inflation, potentially leading to higher interest rates.
  • A weak Canadian dollar will also increase the cost of travel outside of Canada, and make it more expensive to purchase goods from outside of Canada.
• Uncertainty and Investor Confidence:
  • The overall uncertainty created by trade wars can dampen investor confidence, leading to market volatility. This volatility can affect both bond yields and the Bank of Canada’s monetary policy decisions, ultimately impacting mortgage rates in Canada.

 

Integration into the Broader Picture

It’s crucial to understand that the impact of tariffs and trade wars on mortgage rates is interconnected with other economic factors. When considering mortgage rate trends, one must assess how these trade-related factors interact with the Bank of Canada’s policies, bond yield fluctuations, and the overall economic landscape.

Therefore, while the “mortgage rate war” and domestic economic factors are significant, global trade dynamics add another layer of complexity to the Canadian mortgage market.

 

Looking Ahead

• Predicting future mortgage rate trends is complex, as they are subject to various economic factors. However, it is safe to say that close attention should be paid to the Bank of Canada’s policy decisions throughout the near term.
• It is also very important to monitor global economic events (such as the trade war and federal election), that could influence Canadian markets.

 

Key Takeaways

• The Canadian mortgage market remains dynamic, with rates influenced by a complex interplay of economic factors.
• Homebuyers should carefully consider their risk tolerance and financial situation when choosing between fixed and variable mortgage rates.
• The current competitive landscape presents opportunities for borrowers to secure favorable mortgage terms.

 

Contact us today for your pre-approval, refinance, equity take out or mortgage switch.