The Bank of Canada’s (BoC) most recent announcement on December 11th, 2024, was a 50 basis point decrease, lowering the policy rate to . The effects of rate increases can take up to 4 to 6 fiscal quarters (12 to 18 months) before their impact is felt throughout the whole economy. 

Around 60% of all outstanding mortgages are due to renew over the next 2 years. Many of these borrowers will renew for the first time since interest rates increased in 2022, which means that most borrowers will likely see a significant increase in mortgage payments.

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Key Takeaways

• The prime rate is currently .
• Inflation in Canada is currently 1.8%. 
• Interest rates are decreasing, with more rate cuts forecasted for the coming months.

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What Is the Mortgage Rate Forecast For Canada in 2025? (Updated January 2025)

The mortgage rate forecast for Canada is for rate decreases to continue into the new year. Early predictions from some of the Big 6 Banks suggest we could see rates come down in 2025 by as much as another 75 basis points. 

However, rate cuts in 2025 are predicted to be gradual, with a reduction of 25 basis points in future announcements. These predictions are always subject to change depending on geopolitical and macroeconomic conditions.

Bank	Policy Rate Q1	Policy Rate Q2	Policy Rate Q3	Policy Rate Q4
BMO	3.00%	2.75%	2.50%	2.50%
CIBC	2.75%	2.25%	2.25%	2.25%
National Bank	2.75%	2.50%	2.25%	2.25%
RBC	2.75%	2.25%	2.00%	2.00%
Scotiabank	3.00%	3.00%	3.00%	3.00%
TD	3.00%	2.75%	2.50%	2.25%

Will There Be a Bank of Canada Rate Hike in 2025? (January 2025)

It seems unlikely that interest rates will increase anytime soon. Most experts predict that we will continue to see rate cuts in 2025. The Bank of Canada Governing Council has agreed that monetary policy no longer needs to be restrictive. They are now focused on supporting growth and keeping inflation close to the middle of their target range of 1% to 3%.

Top Economist’s Mortgage Predictions for 2025

The Bank of Canada’s (BoC) latest Market Participant Survey, which gathers and publishes the views of senior economists and strategists in the Canadian financial market, forecasted the first rate cut that occurred in June 2024 based on the median response. 

Results from the most recent survey for Q3 2024 suggested that the policy rate could be held at 3.75% at the December announcement, which missed the mark since rates were decreased by a further 50 basis points this past week. 2025 predictions suggest that the policy rate will reduce by 25 basis points at each following announcement until June 2025. 

However, the policy rate expectations are outdated after the December cut, so these predictions will likely change significantly with the Q4 2024 results. Survey results for the end of 2024 are expected to be released in mid-February 2025. 

Bank of Canada Monetary Policy Announcement Date	Policy Interest Rate (%) (expectations based on median response)
January	3.50
March	3.25
April	3.00
June	2.75
Q3	2.75
Q4	2.75

nesto’s Interest Rate Forecast for Canada 2025

	Policy Rate
Q1 2025	3.00%
Q2 2025	2.75%
Q3 2025	2.50%
Q4 2025	2.25%

January 2025 Canada Mortgage Rates Forecast 

The next Bank of Canada rate announcement will take place on January 29th. Some market predictions suggest that the rate could decrease by 25 basis points. The Bank may leave the key rate unchanged depending on inflation, GDP, and employment data released before the next announcement.

Long-Term Mortgage Rates Forecast

The economy continues to feel the effects of the interest rate increases implemented in 2022. It typically takes up to 24 months for rate increases to work through the economy. In past rate tightening cycles, the Bank achieved its goal of controlling inflation within 12 to 18 months. However, this cycle is proving more challenging for the BoC and most other central banks of advanced economies. 

The impact of interest rate increases was felt throughout the housing market as sales volumes decreased in 2024. Home sales are predicted to rebound in 2025 and 2026 as interest rates continue to decrease and strong population growth boosts sales. 

Canada’s economy is expected to grow by an average of 2.25% between 2025 and 2026 as decreases in interest rates boost consumer spending and business investments. Inflation is predicted to remain around the 2% target.  

Experts predict we will likely see gradual 25-basis point cuts throughout 2025. Rate holds are also possible, as the BoC has signalled they are likely to take a gradual approach to cuts going forward. 

Bank of Canada Interest Rate Hike Predictions for 2025

Inflation has finally fallen and remains around the 2% target. Rising shelter costs remain one of the country’s primary drivers of inflation. 

Could another BoC rate hike take place? Interest rate hikes in Canada are not forecasted, but predictions should only be taken as speculation based on current information. Rates are always subject to change due to economic developments and as new information surfaces. Predictions indicate that interest rates are likely to decrease further in 2025.

Bank of Canada 2025 Rate Change Schedule

Date	BoC Rate Announcement Decision (%)	Target Rate
January 29	TBD	TBD
March 12	TBD	TBD
April 16	TBD	TBD
June 4	TBD	TBD
July 30	TBD	TBD
September 17	TBD	TBD
October 29	TBD	TBD
December 10	TBD	TBD

Bank of Canada 2024 Rate Change Schedule

Date	BoC Rate Announcement Decision (%)	Target Rate
January 24	No Change	5.00%
March 6	No Change	5.00%
April 10	No Change	5.00%
June 5	-0.25	4.75%
July 24	-0.25	4.50%
September 4	-0.25	4.25%
October 23	-0.50	3.75%
December 11	-0.50	3.25%

What Affects Future Bank of Canada Rate Decisions?

Inflation

The most recent inflation data shows a rise of 1.8% year-over-year. This month’s slowdown is attributed to slower price growth in items affected by the temporary GST/HST break. Food purchased from restaurants and alcoholic beverages purchased from stores contributed the most to this month’s deceleration. Shelter continues to be the largest driver of inflation, up 4.5%.

Inflation is the most important driving factor behind the BoC’s rate decisions. To hit its inflation target of 2%, the BoC needs to adjust the policy interest rates to control inflation. 

When inflation rises above this target, the BoC increases the policy rate. In turn, commercial banks and lenders raise their prime rates, which directly affect loans and mortgages. This discourages borrowing and spending and helps the BoC’s efforts to bring inflation back to its target of 2%. 

If inflation were below the 2% target, the BoC might lower the policy interest rate to stimulate the economy. Lenders, in turn, decrease their prime rates to encourage borrowing and spending.  

Consumer Price Index (CPI) Release Dates 2025

Date	CPI Index (Year-over-Year Change)
January 21	+1.8%
February 18	TBD
March 18	TBD
April 15	TBD
May 20	TBD
June 24	TBD
July 15	TBD
August 19	TBD
September 16	TBD
October 21	TBD
November 17	TBD
December 15	TBD

Consumer Price Index (CPI) Release Dates 2024

Date	CPI Index (Year-over-Year Change)
January 16	+ 3.4%
February 20	+ 2.9%
March 19	+2.8%
April 16	+2.9%
May 21	+2.7%
June 25	+2.9%
July 16	+2.7%
August 20	+2.5%
September 17	+2.0%
October 15	+1.6%
November 19	+2.0%
December 17	+1.9%

Employment

Statistics Canada’s Labour Force Survey data highlights that December’s employment increased by 0.4% (+91,000) while the employment rate, which is the proportion of people aged 15+ who are employed, rose to 60.8%. The unemployment rate declined 0.1% to 6.7%.

Employment increased in Alberta (+1.4%), Ontario (+0.3%), British Columbia (+0.5%), Nova Scotia (+1.4%), and Saskatchewan (+0.7%). Employment decreased in Manitoba (-1.0%) while remaining little changed in other provinces.

BoC rate decisions aim to support maximum sustainable employment levels while maintaining output growth by keeping inflation predictable and stable while stimulating the economy. For the economy to maintain inflation at the 2% target, it needs to maintain its maximum sustainable level of employment. This means the economy operates at its highest productive capacity and can sustain itself without triggering inflation. 

When employment falls below the maximum sustainable level, people cannot find work and their earnings and savings decline. This affects spending habits, pushing inflation lower, possibly below the 2% target. When employment is higher than this level, employers cannot find enough workers to keep up with demand, which drives prices and wages higher and increases inflation. Finding the perfect balance between inflation and the employment rate is difficult as both are measured on data gathered about their performance from the previous month – and not in real-time.

The US Economy

The latest from the Bureau of Labor Statistics shows that the U.S. CPI increased 0.4% in December after a 0.3% increase in November. The index for shelter rose 0.3%; meanwhile, the all items index increased to 2.9%.

Following the release of CPI data, the bond futures market in the US is pricing in the probability of the Fed holding rates on January 29th.

Historical Context: What Does a Slowing Economy Typically Mean for Mortgage Rates?

The COVID-19 shutdown of the economy and supply chains increased the demand for much-needed supplies. Our demand outstripped supply with lower interest rates and more significant cash flows, creating high inflation. Since inflation is a lagging indicator, and Statistics Canada measures inflation differently for resales of existing homes, it became apparent that inflation was quickly running rampant. As a result, the BoC started ramping up the benchmark key policy interest rate to curb inflation quickly.

_{Source: bankofcanada.ca}

What’s different about these rate increases in previous inflationary cycles? In the 1980s, we did not have the same debt levels. Today, Americans make $1 for every $1 of debt, while Canadians make $1 for every $1.65 of debt. North Americans were not as indebted as in the 1980s. Say you had a $100,000 mortgage, and your income on average was around $20,000; the monthly payment on your mortgage was likely less than $845 at 10% if you had a 35-year mortgage or, say, $1,604 if rates increased to 20% on that same mortgage. Credit cards and HELOCs were not used as often back then, so mortgage debt was likely all you had. 

As rates jumped from 10% to 20%, their interest impact doubled (magnification of 2x). However, now the effect might be much more magnified. A rate increase from 0.25% to 5.00% on the BoC’s Key Policy Rate means a magnification of 19x on the interest component of your mortgage payment. That means on a 25-year mortgage, your $100,000 mortgage’s monthly payment would jump from $436 to $716.  The big difference between 2024 and 1982 is that we no longer have 35-year prime mortgages with average house prices near $72,800 and average mortgage balance hovering around $41,200.

Navigating High-Interest Rates to Save Money on Your Mortgage

As the full effects of past interest rate hikes are felt, consumer demand has been impacted. Mortgage rates are projected to continue to decrease; however, possible bond yield upticks can occur on longer-term declines. 

A large number of mortgages are coming up for renewal in 2025, with 1.2 million mortgages expected to renew. Many of these mortgages (85%) were obtained when the BoC rate was at or below 1%, meaning these borrowers will face significantly higher interest rates at renewal. Those who are part of the 85% of mortgages with low rates need to plan for mortgage renewal payment shock in Canada. Payment shock could further restrict household budgets and inadvertently cause a further decline in fixed rates. The best way to save money on your mortgage is to choose a term and rate type that aligns with your financial situation and future plans.

Advice for Borrowers to Select and Save on Their Mortgage in 2025

1. Focus on Your Financial Stability
In 2025, with economic uncertainty at high levels, selecting the right mortgage should be based on your financial stability rather than unpredictable rate forecasts. Key factors include job security, debt levels, and savings. If your income is steady and you have enough savings to weather unexpected expenses, a variable-rate mortgage might allow you to benefit from potential rate cuts. On the other hand, if financial stability or predictability is more important to you, a fixed-rate mortgage offers payment consistency, shielding you from potential rate spikes.

2. Match Your Term to Your Future Plans
Instead of relying solely on rate outlooks, focus on your personal five-year plan when choosing a mortgage. If you anticipate changes like moving, starting a family or requiring additional financing, a shorter fixed term can provide stability now while keeping your options open for refinancing at potentially lower rates later. If you’re comfortable with some payment variability and can budget for short-term increases, a variable rate could lead to savings as rates decline.

Utilizing Fixed-Rate Mortgages to Reduce Interest Rate Risk

Conventional thinking is to lock yourself into a fixed-rate mortgage at the first sign of rate hikes. However, if inflation is a lagging indicator and bond yields are a leading factor, then waiting for the right moment to lock in may be the most suitable way to proceed. Fixed rates are influenced by bond yields, which typically respond to market expectations of inflation and interest rate trends. Fixed-rate mortgages offer stability and predictable payments.

A calculated method is to position yourself to take advantage of lower rates. This is the best option for anyone navigating this tumultuous rate environment. Shorter fixed terms allow flexibility to benefit from potential rate declines as inflation eases.

Utilizing Variable-Rate Mortgages to Reduce Interest Rate Risk

Variable-rate mortgages (VRMs) and adjustable-rate mortgages (ARMs) can be cost-effective options for borrowers prepared for some payment fluctuation. Since variable rates are tied to the Bank of Canada’s (BoC) policy rate, they adjust with the lender’s prime rate changes. ARMs may offer quicker savings in a decreasing rate environment as payments adjust more dynamically than traditional VRMs.

For well-qualified borrowers, ARMs can outperform VRMs when rates drop, providing immediate relief on monthly payments. This flexibility is especially valuable as households face tighter financial conditions. If you’re comfortable with some payment uncertainty and have room in your budget, choosing an ARM can help you capitalize on future rate reductions while managing your overall financial position.

Mortgage Rates Forecast for Buyers and Sellers in 2025 ( Updated January 2025)

It’s probably best not to have specific expectations from the economy. Even the experts keep missing the mark on predictions, making long-term forecasting even more difficult. 

While the policy rate now sits at the top of the neutral range (2.25% to 3.25%), the Governing Council will likely take a cautious approach to rate cuts in 2025. Experts predict that we will see gradual reductions to the policy rate with 25 basis point cuts at each announcement until it reaches 2.50%. 

Uncertainty or the fear of buying too early as rates fall could leave homebuyers on the sidelines for too long. Home prices are already showing signs of a rebound as rates decrease, and the cost to purchase may soon be much higher. This could leave you with less savings to weather prolonged inflationary pressures. 

Purchasing a home before prices rebound means you can use part of the cash savings from buying today while home prices are lower to help manage higher interest rates and monthly payments during your initial term. A higher rate now means higher monthly payments and a higher income to qualify. However, if you qualify, this might mean lower interest-carrying costs overall for the life of your mortgage. 

If you want to sell and have more than 50% equity and a healthy cash flow, deferring your decision for a year or two with a shorter-term or variable rate option until house prices bounce back will make the most sense. But keep in mind that nothing is for sure, and homes may not bounce back to 2021 levels they were in a bubble in some coveted urban regional markets.

Mortgage Rate Predictions 2026-2029 (Updated January 2025)

While it’s almost impossible to predict where interest rates are headed, most economists agree that we will likely see a more gradual reduction now that inflation appears to be under control. 

One thing that remains certain is that there is an endemic shortage of homes, and this will keep putting upward pressure on inflation—especially if consumers can’t afford to buy homes and decide to spend their money on other things.

The impact of higher interest rates will begin to affect more households in the next few years as those who took out mortgages with lower interest rates in 2020 and 2021 come up for renewal in 2025-2026. 

Canada Interest Rate Forecast 2026

Bank	Policy Rate Q1 2026	Policy Rate Q2 2026	Policy Rate Q3 2026	Policy Rate Q4 2026
BMO	–	–	–	–
CIBC	–	2.25%	–	2.25%
National Bank	–	–	–	2.75%
RBC	–	–	–	–
Scotiabank	3.00%	3.00%	3.00%	3.00%
TD	2.25%	2.25%	2.25%	2.25%

Bank of Canada Market Participants Survey Quarterly Forecast 2025-2026

The Bank of Canada’s forecast looks ahead to 2026 and provides an outlook of what we may be able to expect for interest rates in the future.

2026	Policy Interest Rate (%)  (expectations based on median response)
Q1	3.00
Q2	2.94
Q3	2.88

nesto’s Interest Rate Forecast for Canada 2026-2029

	Policy Rate (%)
Q1 2026	2.25
Q2 2026	2.25
Q3 2026	2.25
Q4 2026	2.00
Q1 2027	2.00
Q2 2027	2.00
Q3 2027	2.00
Q4 2027	1.75
Q1 2028	1.75
Q2 2028	1.75
Q3 2028	2.00
Q4 2028	2.25
Q1 2029	2.50
Q2 2029	2.50
Q3 2029	2.50
Q4 2029	2.50

Home Shopping Trends

Based on sales forecasts from the Canadian Real Estate Association (CREA), market activity is projected to rebound in 2025. Lower mortgage rates and the expectation that the Bank of Canada may indicate that rates are as low as they can go for this easing cycle may prompt an increase in demand from those waiting on the sidelines to purchase a home and lock in a rate.

It’s anticipated that Ontario and British Columbia will see a rebound in home sales while Alberta and Saskatchewan will see increased home prices. Manitoba, Quebec, and the Atlantic provinces are projected to fall somewhere in between, with more sales and higher prices in 2025.

The average home price is anticipated to climb by 4.7% annually to $722,221 in 2025. For 2026, home sales are forecasted to climb nationally by 3.3%, bringing the average home price to $746,379.

Frequently Asked Questions

Final Thoughts

Mortgage rates will go up and down as they have since the invention of mortgages. When it comes down to it, it’s not the rate that matters but how much of your disposable income goes to servicing this obligation. Your goal should be to keep your mortgage payments predictable and manageable for your budget and feasible for the long term to match your financial plans. 

When choosing a mortgage strategy, you should be informed about the risks involved; with this in mind, we recommend that you speak with our mortgage experts before making your decision. Our commission-free mortgage experts at nesto will provide honest and transparent advice and guide you throughout this challenging decision-making process.

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