2025 Mortgage Rate Forecast in Canada: What Borrowers Need to Know

More than 1.2 million Canadians are heading into mortgage renewal in 2025—and many are about to face a financial reality check. Homeowners who locked in ultra-low interest rates between 2020 and 2021 are now staring down rates that are two to three times higher. That difference could mean hundreds, even thousands, more in monthly payments. But will things actually improve in 2025? Will interest rates drop—and if so, by how much? This guide answers those questions with real scenarios, updated forecasts, and advice to help you navigate your renewal with confidence.

Why 2025 Is a Big Deal for Mortgage Renewals

The last time Canada saw this many mortgage renewals in a single year, rates were low and the housing market was red-hot. Now, the context has flipped. Back in 2020, rates hovered around 1.5%–2.0%. Fast forward to 2025, and homeowners are facing renewal offers at 5% or more. That jump is not just uncomfortable—it’s unaffordable for many.

Take the case of Amrit and Neha from Calgary. They bought their home in 2020 with a $500,000 mortgage at 1.8%, paying roughly $1,850/month. When they renewed in early 2025, their bank offered 5.4%. Their payment ballooned to over $2,950/month—a jump of $1,100 every month.

Now multiply that by a million-plus Canadian families. The impact on the economy—and household budgets—will be massive. This is why 2025 isn’t just another renewal year. It’s a reset moment for Canadian borrowers.

The Big Banks’ Mortgage Rate Predictions for 2025

Let’s look at what Canada’s biggest financial institutions are expecting for 2025 policy rates, which heavily influence mortgage rates:

• RBC expects gradual cuts, reaching a 2.00% policy rate by year-end.
• CIBC forecasts 2.25%, with easing starting mid-2025.
• TD and BMO are aligned around 2.50%.
• National Bank projects 2.25–2.50%.
• Scotiabank stands out by expecting no cuts until 2026.

So what does that mean for you? If you’re renewing in Q1 or Q2 2025, rates may still be high. But by Q3–Q4, we may see softening. If you’re flexible, timing your renewal or considering a shorter term could save you money.

3. What Influences the Bank of Canada’s Decisions?

The Bank of Canada doesn’t set mortgage rates directly. But its policy rate influences every bank’s prime rate. And that, in turn, affects variable mortgages and new fixed-rate offers.

So what moves the BoC? Mainly inflation. If inflation is too high, rates go up. If inflation slows, rates may fall. In late 2024, inflation was easing, but not low enough for the BoC to cut aggressively. They’re watching:
– Core inflation
– Wage growth
– Employment trends
– Consumer spending
– What the U.S. Federal Reserve does

If all signs point to a cooler economy and sustained 2% inflation, rate cuts could begin in spring or summer 2025. But it’s not guaranteed.

4. Fixed or Variable in 2025? What Makes Sense?

With rates expected to drop—slowly—many Canadians are wondering: should I go fixed or variable? Let’s break it down:

A fixed-rate mortgage gives you payment certainty. If you lock into a 3-year fixed at 4.9%, you know exactly what you’ll pay each month. This is ideal if you want to avoid stress or think rates may not fall fast enough.

A variable rate, on the other hand, can move up or down with prime. With expected cuts ahead, this could save you money—but only if you can afford payment bumps along the way.

Some Canadians are choosing a hybrid: fixed for 2 years, then variable. Others are going with ARMs (adjustable-rate mortgages) that adjust monthly. If you’re uncertain, consider your cash flow, job stability, and appetite for risk.

5. What Could Happen in 2026 and 2027?

While many are focused on 2025, it’s worth planning for what lies ahead. Most banks see interest rates stabilizing around 2.25% by late 2026, and staying there into 2027.

This means if you’re renewing in 2025, a 2- or 3-year term might land you right in the window when rates are lowest. If you take a 5-year fixed now, you might miss out.

Be strategic. Ask yourself: Am I planning to move? Will my income change? Do I want to lock in peace of mind or play for savings? Your answers will guide the best term length.

6. Real-Life Renewal Strategies You Can Use

Meet Jason and Maya from Brampton. Their $475,000 mortgage is renewing in June 2025. Their current fixed rate is 1.89%, and they’ve been paying $1,780 a month. At renewal, their bank offers a 5.3% fixed rate, raising their monthly payment to nearly $2,650. That’s an $870 increase per month. Instead of accepting the offer blindly, they contact a mortgage broker, who finds a 2-year fixed rate at 4.85% from a different lender—saving them $3,000 in interest over the term, even after discharge fees.

Don’t wait until your renewal date. Start shopping 3–4 months in advance. Ask your lender about early renewal deals. Explore blended mortgage offers or porting options if you’re moving. And use online tools to simulate your future payments before locking anything in.

7. What If Rates Don’t Drop?

While forecasts suggest rate cuts, nothing is guaranteed. If inflation re-accelerates or if the economy holds stronger than expected, the Bank of Canada may delay cutting rates. This could leave borrowers in a holding pattern—paying high interest longer than planned.

In that case, locking into a 2- or 3-year fixed rate may provide a safety net. It gives you a window to reassess once the economic picture becomes clearer. If you go variable hoping for cuts that don’t arrive, be prepared to weather continued high payments.

8. Tools to Use Before You Renew

Before renewing your mortgage, take advantage of free online tools to understand your numbers and choices:

– **Mortgage Payment Calculator** – Estimate monthly payments at different rates and terms.
– **Refinance vs Renewal Tool** – See if breaking your mortgage and starting fresh could save you money.
– **Stress Test Simulator** – Understand your eligibility under new borrowing conditions.
– **Rate Comparison Dashboards** – Check multiple lenders side-by-side to see who’s offering the best deals.

Knowledge is power—especially when your budget is at stake.

9. Related FAQs

• Will rates return to 1.5%?

No. That was a temporary pandemic-level policy. Most analysts expect future lows around 2.0–2.5%.

• Should I go with a fixed or variable rate?

It depends. Fixed offers predictability. Variable may save money—if you can handle short-term volatility.

• Can I renew early to lock in a better deal?

Yes. Most lenders allow renewals 90–120 days before maturity. Ask for your early offer window.

• What happens if I switch lenders?

You may need to requalify under new lending rules and pay legal discharge fees. But the savings can still be worth it.

• What if I can’t afford my new payments?

Talk to your lender before default. You may qualify for extensions, blended options, or temporary relief. Acting early helps.

10. Final Word: Survive and Thrive in 2025

2025 will be a defining year for Canadian mortgage holders. While payment shocks are real, informed homeowners have options. By understanding the forecasts, watching the Bank of Canada’s signals, and proactively managing your renewal, you can avoid panic and make smart moves.

Whether you choose a short-term fixed rate, go variable, or refinance strategically, the key is preparation. Use the tools. Ask the questions. Speak to mortgage experts—not just your bank—and explore every option on the table.

💡 Need help making sense of your renewal options? Visit Mortgage.Expert to explore custom strategies, rate calculators, and one-on-one support.