Mortgage Rate Forecast: Predicts Two Rate Cuts This Year

Forecasts Two BoC Rate Cuts in 2025

Canada-based mortgage lender Nesto predicts the Bank of Canada’s policy rate will fall from 2.75% to 2.25% in 2025—a shift triggered by persistent global uncertainty, U.S. Fed cuts, and sluggish domestic growth. That equates to two 25-basis-point cuts, likely scheduled for July and later in the fall, assuming inflation doesn’t surge unexpectedly.

Nesto’s commentary suggests that bond markets are signaling a peak in the policy cycle, adding that falling discount on variable and adjustable rates may make them more attractive than locking in fixed rates

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Understanding the Drivers Behind the Forecast

Nesto outlines several factors influencing this downtick:

• U.S. rate cuts, which typically ripple through to Canada, narrowing the interest-rate gap
• Global economic headwinds, including trade tensions and uneven growth
• Weakening Canadian inflation, which hovers near target but lacks clear momentum to stay elevated

By pointing to bond futures, Nesto notes that markets now assign a 33% probability of a July cut—about the same chance seen in September .

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What It Means for Mortgage Seekers

Nesto advises prospective buyers and renovators to opt for shorter-term fixed mortgages (e.g., 3-year) if they sense rates will fall, but warns that expectations may shift mid-term .

With the forecasted prime rate drop to 4.70%, 5-year fixed mortgages are expected to settle around 3.9%, while variable mortgages could dip to 3.7%, hinging on bond yield movement .

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Bond Yield Connection

A key link between policy cuts and mortgage rates is bond yields, especially on 5-year Canada bonds. These yields affect fixed-rate mortgage pricing, and they remain moderately high due to market volatility from trade plus inflation worries .

Nesto emphasizes that until bond yields react to actual BoC rate cuts, fixed mortgage rates will tend to hold comparatively firm.

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Comparing Mortgages: Fixed vs Variable

• Fixed-rate mortgages (5-year): Offer stability with predicted end-2025 rates near 3.9%. Ideal for risk-averse borrowers .
• Variable-rate mortgages: Currently around 3.99%, but may fall further if cuts happen and long-term yields soften .

Nesto suggests that if near-term cuts materialize, variable or shorter terms may yield cost-savings. Yet, if cuts fail to arrive, fixed rates provide certainty.

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What Borrowers Should Do Now

1. If you want predictability → lock in a fixed rate, ideally shorter-term like 3 years.
2. If flexible and opportunistic → opt for variable and refinance if cuts come.
3. Refinancing/renewal window ahead? Consider consolidating into a shorter term to revisit rates more often.

Nesto underscores the importance of planning according to your financial goals and risk tolerance .

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Looking Ahead

• July 30: Bank of Canada’s next rate decision—expect a 25-bps cut if core inflation stays subdued
• Fall 2025: A further 25-bps reduction may follow if economic headwinds continue unfolding

Bond markets and rate forecasts will crackle with arrival of incoming June CPI and Q2 GDP data.

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📊 Mortgage Rate Forecast Table

BoC Rate	Prime Rate	5‑year Fixed	Variable Rate
2.75%	4.95%	~4.58%	~3.99%
2.25%*	4.70%	~3.90%	~3.70%

*Predicted by year-end following two 25-bp cuts

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Final Take

Nesto’s well-founded two-cut forecast for 2025 signals potential hope for rate-savvy borrowers. Still, timing is key—if cuts are delayed, the cost differences shrink. For borrowers, the best move may be a balanced strategy: shorter fixed terms or variable options, paired with flexibility to refinance if cuts materialize.