Bank of Canada Cuts Benchmark Rate to 2.25% — What It Means for Mortgages

Toronto | October 30, 2025 — In its October policy announcement, the Bank of Canada lowered its key overnight rate by 25 basis points to 2.25%, a move that will ripple through the Canadian mortgage market. The accompanying Bank Rate was adjusted to 2.50%, and the deposit rate to 2.20%. The central bank’s decision comes against a backdrop of slowing economic momentum, weaker exports, and a labour market that is showing early signs of softening.

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Why the Bank of Canada Cut Rates

The Bank’s latest decision reflects mounting concerns about Canada’s growth trajectory. While inflation pressures have eased in recent months, global trade tensions — particularly with the United States — have cast a shadow on exports and business investment. The Canadian dollar has also been under pressure, amplifying import costs for households.

In its statement, the BoC acknowledged that while previous rate cuts have offered relief, the economy still requires “measured monetary support.” However, it signalled caution going forward, hinting that this could be the final rate reduction unless conditions worsen.

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The New Policy Rates at a Glance

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What This Means for Borrowers

The most direct impact of the Bank of Canada’s move will be felt by borrowers holding variable-rate mortgages or home equity lines of credit (HELOCs) tied to prime. When the overnight rate falls, Canadian banks usually lower their prime lending rate, which translates into immediate savings on monthly mortgage payments for variable-rate borrowers.

For example, on a $500,000 mortgage with 20 years left, a 0.25% drop in the interest rate could reduce monthly payments by roughly $65–$75, depending on the lender. Over the course of a year, that’s close to $900 in household savings.

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Implications for Fixed-Rate Mortgages

Fixed-rate mortgages, while not tied directly to the overnight rate, often react to bond yields. Government of Canada bond yields tend to move in anticipation of monetary policy, and with today’s announcement, yields have already dipped. That sets the stage for potential reductions in fixed mortgage rates in the coming weeks.

This is especially good news for borrowers approaching renewal. Many Canadians who locked into 5-year fixed terms in 2020 or 2021 are facing renewal this year. While their new rates may still be higher than the rock-bottom levels seen during the pandemic, today’s cut provides some relief from the peak rates experienced in 2023–2024.

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Why the BoC May Pause After This

Despite today’s cut, the Bank of Canada has left the door open to a pause. Policymakers are wary of cutting too aggressively and reigniting inflation pressures. The global backdrop remains uncertain, with oil price volatility, geopolitical risks, and persistent U.S. trade friction all influencing Canada’s outlook.

The Bank’s cautious tone suggests that borrowers should not assume an extended cutting cycle. If inflation reaccelerates, or if housing demand heats up too quickly, the central bank may be forced to hold or even reverse course.

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For Homebuyers: Timing and Strategy

For prospective buyers, today’s announcement creates both opportunity and uncertainty. Lower rates reduce borrowing costs, but they can also attract more competition in the housing market, pushing prices higher. In markets like Toronto and Vancouver, where affordability is already stretched, any dip in mortgage rates could reignite bidding wars.

First-time buyers should remain disciplined: getting a mortgage pre-approval now could help lock in today’s more favourable rates, while keeping an eye on property prices.

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Outlook

The Bank of Canada’s October cut underscores the delicate balancing act between supporting growth and maintaining price stability. For households, the message is clear: relief is here, but the long-term path remains uncertain.

• Variable-rate borrowers will see immediate savings.
• Fixed-rate borrowers could benefit in the coming weeks as lenders adjust.
• Renewal candidates should shop around aggressively.
• Buyers should prepare for potential renewed heat in certain housing markets.

For now, Canadian borrowers can enjoy a modest reprieve, but whether this is the start of a sustained easing cycle — or just a brief pause — will depend on how the economy evolves in the months ahead.