Bank of Canada Holds at 2.25% as the Case for Cuts Fades
Bank of Canada Holds at 2.25% as the Case for Cuts Fades
The Bank of Canada left its overnight rate at 2.25% on July 15, a sixth straight hold and the least suspenseful decision of the year. Every economist polled had expected it. The real news sat in the quarterly Monetary Policy Report released the same morning, the Bank’s first full forecast refresh since April, and in a subtler shift that reshapes almost every mortgage decision this summer. The rate-cut cycle Canadians spent a year waiting on has run its course.
A cut was never a live option this time, and the market has quietly repriced the road ahead so that the next move it anticipates is an increase rather than a reduction. Rates are steady today, yet the cheap-money tailwind borrowers grew used to has faded, and fixed rates have already begun to climb on their own. The honest read is not relief. It is a hold with an upward tilt.
Best Mortgage Rates
The BoC decision in brief:
- The overnight rate was held at 2.25%, marking a sixth consecutive pause following 50-basis-point cuts over September and October 2025.
- May inflation ran at 3.2%, its first print above 3% since late 2023, though the jump was almost entirely gasoline; the Bank’s core gauges held near the 2% target.
- Growth firmed, with GDP up 0.5% in April and the May trade surplus widening to roughly $4.2 billion, a 4-year high.
- Hiring added 18,000 jobs in June, and unemployment eased to 6.5%, its lowest since January.
- Fixed mortgage rates kept drifting higher alongside bond yields, even with the policy rate anchored.
Why a Hold Was the Easy Call
For much of the year, the Bank has been caught between two opposing forces. War-driven oil prices lifted headline inflation and argued for tighter policy, while a stumble in first-quarter growth argued for the reverse. Both pressures have loosened their grip. Crude has retreated from above US$100 a barrel into the US$70s, and although May inflation touched 3.2% on a 33% surge in pump prices, the measures the Bank steers by, CPI-median at 2.1% and CPI-trim at 2%, held firmly on target. The energy spike has stayed contained, with little evidence that it is seeping into the wider basket.
The growth side has cooperated as well. Monthly GDP rose 0.5% in April, its fastest pace since last summer, the trade surplus reached a 4-year high in May on strong commodity exports, and June hiring pulled unemployment down to 6.5%. Governor Tiff Macklem captured the Bank’s posture at a central banking forum in Portugal, saying, “We’re comfortable where we are.”
Neither side of the ledger is fully settled. The Bank made this call without June’s inflation figure, which arrives July 20, leaving May’s 3.2% as the freshest reading at the table. Renewed US-Iran strikes in the days before the meeting also put oil back on edge, a reminder that the risk which created the dilemma has not fully subsided.
Fixed and Variable Have Parted Ways
A steady policy rate pulls the two halves of the mortgage market in different directions. Variable-rate mortgages move with the overnight rate, so a flat 2.25% means no change to variable interest or adjustable payments for now. The prime rate stays at 4.45%, and nesto’s lowest insured variable offer is 3.40%.
Fixed rates answer to a different master. They take their cue from the bond market, and Government of Canada (GoC) yields have been grinding higher, with the 5-year yield brushing a 7-week high near 3.2% ahead of the decision. nesto’s lowest insured 5-year fixed rate is 4.14%, and rates have been rising for weeks. If the difference between fixed and variable is what you are weighing, that split in how the two are priced is the heart of it.
The practical lesson rarely makes the headline. With the policy rate near this cycle’s floor and the market tilting toward an eventual increase, waiting for a materially cheaper fixed rate may mean waiting for a drop that never lands. CIBC’s Benjamin Tal has put it in numbers, estimating that even a Middle East peace deal would trim only about 15 basis points from Canadian fixed rates. Our mortgage rates forecast lays out how the path could unfold.
Renewals Are the Real Pressure Point
For most households, the announcement matters far less than their mortgage renewal letter. Around 1.15 million Canadian mortgages come up for renewal in 2026, and another 940,000 in 2027, with the bulk of them signed at pandemic-era rates well below today’s. Payment increases on renewal are averaging about 15%.
Canada’s financial system is absorbing the strain. National 90-day mortgage delinquency sits near 0.24%, only a shade above its pre-pandemic norm. What has changed is the character of the risk. With rates elevated for longer, the greater threat to a stretched borrower is no longer a payment shock at renewal but a job loss if the labour market softens.
That shift lands hardest on anyone considering a refinance. Nationally, roughly 4% of borrowers renewing in 2027 would fall short of qualifying to refinance at current prices, a figure closer to 9% in Toronto, and the window tightens further if home values decline. When a refinance is on the horizon, acting sooner is often better than waiting.
How Affordability Shifted Across Canada
How Bank of Canada Rate Changes Affected Home Prices, Mortgage Qualification and Interest Costs Across Canada
Housing Affordability: Year-Over-Year Changes in Home Prices
The first and most visible affordability constraint remained the price of housing itself. While national benchmarks often suggest home prices are stabilizing, price movements can vary materially by province, altering the upfront capital required to enter homeownership. In some provinces, benchmark home prices declined year over year, mechanically improving affordability. In other cases, home prices remained elevated or continued to rise, thereby reinforcing barriers to entry. However, price adjustments alone did not determine affordability outcomes, particularly where financing costs remained restrictive.
| Home Prices June 2026 | Home Prices June 2025 | Year-over-Year $ Difference | |
|---|---|---|---|
| Canada | $667,700 | $696,400 | -$28,700 |
| BC | $889,800 | $938,800 | -$49,000 |
| AB | $515,300 | $527,300 | -$12,000 |
| SK | $381,100 | $367,200 | $13,900 |
| MB | $396,900 | $381,900 | $15,000 |
| ON | $756,900 | $801,000 | -$44,100 |
| QC | $547,400 | $529,300 | $18,100 |
| NB | $352,299 | $319,800 | $32,499 |
| NS | $441,400 | $437,500 | $3,900 |
| PE | $383,200 | $371,900 | $11,300 |
| NL | $349,900 | $314,300 | $35,600 |
Mortgage Affordability: Income Required to Qualify for the Same Home
Home prices represented only one component of affordability. Mortgage affordability depended on qualifying income, prevailing interest rates, and lender underwriting standards. The table below shows how the required household income to be eligible for the same benchmark home changed year over year using a consistent qualification framework. In several provinces, required incomes changed unevenly compared to home prices, as borrowing costs offset price changes. This divergence explained why affordability metrics improved in theory while access to mortgage credit remained constrained in practice.
| Qualifying Income June 2026 | Qualifying Income June 2025 | Year-over-Year $ Difference | |
|---|---|---|---|
| Canada | $126,726 | $124,964 | $1,762 |
| BC | $151,657 | $149,308 | $2,348 |
| AB | $94,672 | $93,312 | $1,360 |
| SK | $76,876 | $75,870 | $1,006 |
| MB | $80,445 | $79,397 | $1,047 |
| ON | $148,290 | $146,293 | $1,997 |
| QC | $100,377 | $98,933 | $1,445 |
| NB | $73,557 | $72,628 | $930 |
| NS | $91,609 | $90,444 | $1,165 |
| PE | $79,838 | $78,826 | $1,011 |
| NL | $68,502 | $67,578 | $923 |
Homeownership Affordability: Changes in Interest-Carrying Costs
Affordability pressures did not end at mortgage approval. Households ultimately faced the ongoing cost of servicing mortgage debt. The final comparison isolates the interest portion of mortgage payments to show how the cost of carrying a home evolved year over year. In most provinces, interest-carrying costs changed in proportion to interest rates. Even so, financing costs remained materially higher than before the tightening cycle, shaping renewal or refinancing options and limiting near-term payment relief for existing homeowners.
| Interest-Carrying Costs June 2026 | Interest-Carrying Costs June 2025 | Year-over-Year $ Difference | |
|---|---|---|---|
| Canada | $103,003 | $102,646 | -$1,041 |
| BC | $137,266 | $138,375 | -$1,700 |
| AB | $79,493 | $77,722 | -$781 |
| SK | $58,791 | $54,124 | $334 |
| MB | $61,228 | $56,290 | -$680 |
| ON | $116,764 | $118,064 | -$743 |
| QC | $84,445 | $78,016 | -$1,577 |
| NB | $54,348 | $47,137 | -$17 |
| NS | $68,093 | $64,485 | -$750 |
| PE | $59,115 | $54,816 | -$60 |
| NL | $53,978 | $46,326 | $971 |
Why These Affordability Measures Matter for Monetary Policy
Viewed together, these three measures explain why affordability adjusted unevenly as broader economic conditions evolved over the last 12 months. Home prices moved unevenly, mortgage qualification remained highly sensitive to interest rates, and homeownership costs stayed elevated across much of the country. These dynamics reinforced the reality that monetary policy influenced affordability primarily through financing conditions rather than price correction alone, supporting a cautious, data-dependent policy stance over time.
*For illustrative purposes only, when comparing against nesto’s 5-year lowest fixed insurable mortgage rates, with a 20% downpayment & 25-year amortization, using Canada’s composite average home price data as made available through CREA. Other limiting terms & conditions apply. Rates are subject to change without notice.
What nesto Borrowers Are Actually Doing
Forecasts are a dime a dozen. What distinguishes nesto’s vantage point is that we watch what Canadians are signing in close to real time, and the behaviour cuts through the noise.
Among nesto applicants in April 2026, 71% voiced an intent to go variable at the application stage, the strongest variable appetite in 17 months of nesto data. Yet by the time those same borrowers locked in a term, only 34% followed through on variable. The intent to float more than halved between the first conversation and the signature.
The destination was overwhelmingly fixed. Of every nesto borrower who committed to a term that month, 51.6% chose the 5-year fixed, and 5-year fixed commitments climbed 80.6% from a year earlier, more than double the 32.5% rise in the 5-year variable. The quickest mover was the 3-year fixed, whose share of nesto commitments jumped from about 7.8% in February to 14.3% in April. Borrowers were gathering around certainty well before the market made the upward path official.
How to Read the Hold From Where You Stand
The rate hold means something different depending on your situation. You can stress test any of these against your own numbers using nesto’s mortgage payment calculator.
Buyers
Negotiating power still sits with you across much of the country, yet financing costs are not coming down anytime soon. A pre-approval locks a rate hold against bond swings that have jumped 35 to 40 basis points on a single headline this year.
Renewers
The wait-for-cuts strategy has no more runway. With fixed rates firming, holding out for a lower renewal carries genuine downside. When certainty outweighs the pursuit of the bottom, a shorter fixed term, such as the 3-year term, is what a growing share of nesto borrowers are settling for.
Refinancers
The refinance window is closing on borrowers whose equity has thinned, and the qualifying math turns less forgiving if prices ease. When a refinance is on your radar, moving sooner is the safer play.
Variable and Adjustable Holders
Your monthly payment is on hold today, but budget for higher-for-longer rather than imminent relief. The next move the market expects is higher, so leave yourself a cushion rather than banking on a cut.
The Signal Was in the Forecast
With the rate a foregone conclusion, the weight of the decision fell on the Monetary Policy Report. In April, the Bank sketched 2026 growth of 1.2% and average inflation of 2.3%. Heading in, Capital Economics looked for a modest downgrade to the inflation track after oil fell faster than that report had assumed. Tone mattered as much as the numbers, and markets parsed the language for any echo of June’s talk of “consecutive” hikes, which had unsettled bond yields.
The professional consensus is not unanimous. The C.D. Howe Institute’s Monetary Policy Council favours a hold at 2.25% into late 2026 and a step up to 2.5% by mid-2027. Oxford Economics sees growth of just 0.7% this year and unemployment drifting toward 7%, while TD looks for a sturdier economic rebound toward 1.7% by year-end. Scotiabank supplies the contrarian note on jobs, arguing the 6.5% rate flatters the slack in the market and that, measured on stricter US definitions, Canada would read closer to 5.1%, near full employment.
The sharper divide is between the two camps that set prices. Money markets still carry a partial hike for December; most bank economists see the rate frozen at 2.25% through 2026. That gap, not today’s hold, is the number worth watching, and whichever way the forecast leans will set the tone for fixed rates into the fall.
The Bottom Line for Borrowers
A sixth straight hold at 2.25% looks placid on the surface and carries real weight underneath. The Bank is keeping its options open, yet the market has largely concluded that the next move points up, and fixed rates are already reflecting it. With this report, the Bank delivered its first full forecast update since April, and attention now turns to the next decision in September.
The takeaway for borrowers is to stop planning around cuts that may never arrive and start planning around the rate landscape that actually exists. That is a conversation worth having with someone who lives in it daily, and nesto mortgage experts can weigh your options, secure a rate, hold it against bond swings, and match you to the term that fits your life rather than the headlines.
Why Choose nesto
At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and the quality of their advice. nesto aims to transform the mortgage industry by providing honest advice and competitive rates through a 100% digital, transparent, and seamless process.
nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.
Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.
About the contributors
