Mortgage Rates Dip to 2025 Lows — Should Canadian Borrowers Lock In Now or Wait?

A Welcome Dip for Borrowers

Canadian mortgage shoppers got some rare good news this week — national mortgage rates have dropped to their lowest levels in 2025, with some lenders offering 5-year fixed rates as low as 3.89% for well-qualified borrowers. This marks the sharpest decline since January and has triggered renewed conversations among buyers and those approaching renewal about whether now is the right time to act.

According to Mortgage Sandbox and industry trackers, the rate drop is being driven by declining bond yields, softening inflation expectations, and growing speculation that the Bank of Canada (BoC) will cut its policy rate later this year.

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What’s Driving the Decline

1. Bond Yields Are Falling

Fixed mortgage rates in Canada are closely tied to 5-year Government of Canada bond yields. In the past two weeks, yields have fallen nearly 30 basis points, reflecting market expectations for slower economic growth and a more dovish BoC stance.

2. Inflation Pressure Is Cooling

The latest CPI report showed annual inflation easing to 2.3%, down from 2.6% the previous month. That’s getting closer to the BoC’s 2% target, which supports the case for rate cuts.

3. Global Market Influence

Concerns over trade tariffs and slowing U.S. growth have also driven investors toward safe-haven assets, pushing bond yields — and mortgage rates — down.

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Impact on Different Borrower Types

For Homebuyers

Lower rates can improve affordability. For example, a $500,000 mortgage at 3.89% instead of 4.25% saves roughly $110/month in payments. That can make the difference in qualifying under Canada’s mortgage stress test, which requires borrowers to qualify at the greater of the contract rate plus 2% or the BoC’s benchmark rate.

For Renewals

Roughly 60% of Canadian mortgages are set to renew in 2025–2026, many at rates higher than their original contract. For borrowers renewing now, today’s rates may still be higher than what they locked in five years ago, but the recent drop offers some relief — and an opportunity to shop aggressively among lenders.

For Variable-Rate Holders

Variable rates are tied to lenders’ prime rates, which move with the BoC policy rate. While this week’s decline doesn’t directly affect variable borrowers, it signals a higher probability of BoC rate cuts in the coming months — which could translate to lower variable payments by year-end.

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Should You Lock In Now or Wait?

This is the question dominating conversations in mortgage broker offices across Canada. The answer depends on your circumstances:

• Lock In Now if you have a firm purchase closing date or renewal within 4–6 months and can secure today’s rates with a pre-approval. Rates could fall further, but even a modest rebound in bond yields could erase recent savings.
• Wait if you’re more than six months out and have flexibility. If inflation keeps trending down, fixed rates could edge lower — but the risk is that stronger economic data could reverse the drop.

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Expert Insights

Mortgage broker analysts suggest a “hybrid approach” for some borrowers: locking in a competitive short-term fixed rate (1–3 years) to ride out potential BoC cuts, then reassessing when rates may be even lower.

Others caution against over-timing the market. As James Laird of Ratehub.ca often notes:

“If you wait for the absolute bottom, you’re more likely to miss it. A good rate when you need it is better than a great rate you never get.”

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Market Outlook

Most forecasters now expect two BoC rate cuts before the end of 2025, potentially bringing the policy rate down to 2.25%. If this happens, variable-rate holders will see more direct benefits, and fixed rates could ease further. However, geopolitical risks and domestic inflation surprises could disrupt this path.

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Mortgage.Expert Tips for Borrowers Right Now

1. Get a Rate Hold: Many lenders allow you to secure today’s rates for up to 120 days — valuable protection if rates rise.
2. Shop Multiple Lenders: Don’t just take your bank’s renewal offer; a broker can often beat it by 0.10%–0.30%.
3. Consider Prepayments: Use savings from lower rates to pay down your principal faster.
4. Watch the Bond Market: If 5-year bond yields keep trending down, further rate cuts could be coming — and knowing when they reverse can be your signal to act.

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Mortgage rates at their lowest levels of the year present an opportunity — but also a decision point. Whether you lock in now or wait for potential further drops depends on your timeline, budget, and risk tolerance. In a volatile market, the best rate is one that works for you today while still aligning with your long-term goals.

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