5-Year Fixed Mortgage Rates Could Fall to 4.2% by Year-End — Is It Time to Lock In?

As Rates Drift Down, Could 2025 Be the Year to Lock In?

Canadian homeowners may finally be getting a small break — or at least a light at the end of the tunnel.

According to the latest projections from Mortgage Sandbox and several bank models, 5-year fixed mortgage rates could decline to roughly 4.2% by December 2025. While that’s still well above the historic lows seen during the pandemic, it would mark the lowest level since early 2022, offering fresh opportunity for those renewing or entering the market after a rough few years.

If these projections hold, locking into a fixed rate in the coming months might provide the best balance of affordability and stability.

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So, Where Are We Now?

As of mid-July 2025, most 5-year fixed mortgage rates are sitting in the 4.4% to 4.9% range at major lenders. The rates have been edging downward thanks to easing inflation and stable bond markets, but the shift has been gradual.

• Best rates for well-qualified buyers: ~4.29% from select broker-only lenders
• Big bank posted rates: Hover around 4.79%
• 5-year Canada bond yield: Recently fell to ~2.60%, its lowest since April

These bond yields are a critical driver of fixed mortgage pricing. The lower they go, the more room lenders have to offer competitive rates — assuming risk appetite stays intact.

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Why Rates Could Keep Drifting Lower

There are a few key forces pulling fixed rates downward right now:

1. Tamer inflation: Canada’s inflation rate has hovered between 1.7%–2.1% over the past few months, reinforcing the idea that rate hikes are over.
2. Bond market pricing: Global investors are increasingly betting on lower long-term rates, which pushes bond yields down and mortgage rates with them.
3. Cooling economic momentum: With GDP growth slowing and unemployment ticking up slightly, many economists expect the Bank of Canada to maintain — or even lightly trim — the policy rate into early 2026.

What This Means for You

If you’re nearing a mortgage renewal, shopping for a new home, or deciding whether to stay variable or go fixed — this forecast matters.

While rates aren’t expected to plummet, they are showing signs of softening. That could open up a window of opportunity later this year, especially if bond yields stay low and economic conditions remain steady.

Tips:

• If you’re risk-averse and want peace of mind, locking in around 4.2%–4.3% this fall could offer security without drastically overpaying.
• If you’re in a variable mortgage, this may not be the time to switch unless you foresee stability as more important than chasing further rate drops.
• For buyers, this may help slightly ease qualification pressures — though the stress test still applies at much higher levels (~6.2%).

Even modest rate drops can mean thousands saved over a 5-year term. So if the forecast holds, fall 2025 might be the season to finally secure a deal that feels reasonable again.