What to expect for mortgage rates in 2025-2027

After several interest rate cuts in 2024, Canada’s borrowing costs have finally settled, giving homebuyers a bit of breathing room. As of July 2025, the Bank of Canada kept its overnight rate steady at 2.75%, highlighting that inflation is close to its target, but uncertainties in global trade, especially new U.S. tariffs, could still shake things up. For Canadians looking to buy a home or refinance their mortgage, understanding what lies ahead is more important than ever. Economists and financial experts have different predictions for mortgage rates between 2025 and 2027, from modest drops to steady levels. In this guide, we’ll explain in simple terms what drives mortgage rates, what trends to expect, and practical tips for homeowners and first-time buyers to plan smartly for the coming years.

What Influences Mortgage Rates?

Mortgage rates don’t move randomly; they follow a few key factors:

• Bank of Canada (BoC) interest rate: This is the main driver of variable mortgage rates. When the BoC lowers its rate, borrowing becomes cheaper. When it raises the rate, it costs more to borrow.
• Bond yields & inflation: Fixed mortgage rates often follow long-term bond yields. If inflation rises or the economy grows faster than expected, fixed rates usually go up. If inflation is low, rates tend to stay lower.
• Economic health: Jobs, GDP growth, and global trade all affect rates. For instance, tariffs or trade uncertainty can make the BoC cautious and slow down rate changes.
• Housing market conditions: More homes for sale and slower price growth can make borrowing cheaper, while high demand and low supply push costs up.

What Experts Are Saying?

Canada’s economists have slightly different views, but here’s the overall picture:

• RBC (Royal Bank): Rates will likely stay around 2.75% through 2026. No major cuts expected.
• TD & CIBC: Expect a small cut of about 0.25% in late 2025, then rates will remain stable.
• BMO & National Bank: Predict two small cuts by early 2026, then a slight rebound later.
• Scotiabank: Forecasts three small cuts in 2026, bringing rates down to around 2%.
• CMHC (Canada Mortgage and Housing Corp.): Variable rates may stay attractive, while fixed rates could gradually rise to about 5.5% by 2027.

Most experts agree rates won’t drop dramatically, but there’s potential for modest decreases over the next couple of years.

What Does This Mean for Homebuyers?

Here’s how these forecasts could affect Canadians:

• Slightly lower borrowing costs: Even small rate cuts can save money. For example, a 0.25% drop could reduce monthly payments by roughly $12.50 per $100,000 borrowed.
• Variable vs. fixed: With potential rate cuts, variable-rate mortgages may become more attractive, offering cheaper monthly payments. Fixed rates still give predictability and protect you if rates rise unexpectedly.
• Better affordability: Recent rate cuts and softer home prices have made buying more accessible than it was a few years ago, especially outside the priciest markets.
• Housing market trends: In Ontario and B.C., more homes for sale and slower price growth give buyers more negotiating power. If you’re planning to buy soon, this could work in your favor.

Smart Tips to Prepare for Canadian Mortgage Rates in 2025–2027:

• Budget for a higher rate: Even if rates drop slightly, it’s smart to see if you can handle payments at 5–6% just in case.
• Compare fixed and variable rates: Some buyers split their mortgage, part fixed, part variable, to balance safety and savings.
• Shop around: Different lenders offer slightly different rates. Even 0.2–0.3% can save thousands over the mortgage term.
• Watch economic news: BoC updates, inflation reports, and global trade news can give clues about future rates.
• Start your renewal early: If your mortgage term ends in 2025–26, begin checking rates ahead of time to lock in a good deal.

Bank of Canada Rate Forecast – Next 5 Years:

Based on current market predictions – can change if the economy shifts:

FAQs:

1. What’s next for mortgage rates?
   Most experts expect rates to stay near current levels in 2025, with a small chance of modest cuts in 2026. Big drops are unlikely unless the economy slows sharply.
2. How do tariffs impact inflation and mortgage decisions?
   Tariffs can raise the price of imported goods, which pushes inflation higher. This can make the Bank of Canada more cautious about cutting rates.
3. Will the Bank of Canada cut, pause, or hike rates?
   As of mid-2025, the BoC is expected to hold rates steady for a while. Cuts may happen if inflation stays low and economic growth weakens.
4. What latest economic factors are influencing Canada’s interest rate path?
   Inflation trends, job market strength, and global trade tensions, especially with the U.S. are key drivers. These shape the BoC’s decisions.
5. What benchmarks indicate a balanced economy?
   Stable inflation near 2%, steady employment, and sustainable GDP growth signal balance. These make for predictable, steady mortgage rates.
6. What are economists predicting for BoC rates from 2025 to 2027?
   Forecasts suggest a slight drop to around 2.50% in 2026–2027, then a gradual climb again by 2028–2029.
7. What is the BoC’s 5-year forward rate forecast?
   Projections show rates at about 2.75% in mid-2025, dipping to 2.50% in 2026–2027, then rising to 3.00% by 2030.
8. How far could mortgage rates fall in 2025?
   They could dip slightly if inflation stays on track and the economy slows. However, experts don’t expect major declines.
9. What does the ‘neutral rate’ mean?
   It’s the interest rate level which the economy grows at a healthy pace without boosting inflation. Think of it as the “just right” setting.
10. Could prime rates rise, and what would that mean for mortgages?
    If inflation picks up again, prime rates could increase. This would raise borrowing costs, especially for variable-rate mortgages.
11. How can I get personalized mortgage advice from Mortgage Squad?
    You can reach out to Mortgage Squad’s expert advisors through their website or contact form. They can help you compare rates, choose the best mortgage, and plan for your home purchase or renewal.

Canadian Mortgage Rate Outlook – Steady with Small Drops Ahead:

Canadian mortgage rates are expected to stay close to today’s levels, with small declines possible in 2026. Homebuyers should prepare for steady or slightly lower rates, not dramatic drops.

By planning ahead, keeping an eye on the economy, and comparing options, you can make smart mortgage choices and reduce stress over the next few years. With careful planning, you’ll be ready to take advantage of whatever the market brings.