Canadian homeowners and buyers just got some good news. Fixed mortgage rates, especially the popular 5-year term, have begun sliding below 4% for the first time in nearly two years. The shift comes as government bond yields decline and markets prepare for a widely expected Bank of Canada rate cut on September , 2025.

Fixed Rates: A Clear Downward Trend

Mortgage lenders price fixed-rate loans based on Government of Canada bond yields, particularly the 5-year yield. Over the past month, these yields have dropped sharply as investors anticipate slower growth and lower inflation.

That decline has filtered through to mortgage offers:

Several lenders are now quoting 5-year fixed rates starting with a “3”, something unseen since 2022.
Shorter terms like 3-year fixed rates have also edged lower, appealing to borrowers who want flexibility as the rate cycle turns.

This shift is giving homeowners new breathing room on renewals, especially those coming off much higher pandemic-era lows.

Variable Rates: Waiting for the BoC

While fixed rates have already adjusted downward, variable-rate mortgages are in a holding pattern. These products move with the prime lending rate, which is tied directly to the Bank of Canada’s policy rate.

If the BoC trims its overnight rate by 0.25% on September, prime rates at major banks are expected to follow. That would deliver immediate relief for:

Homeowners on adjustable-rate mortgages whose payments change with every rate move.
Borrowers using home equity lines of credit (HELOCs), which are priced off prime.

For now, many variable-rate holders are paying more than their fixed-rate peers. But a cycle of cuts could reverse that dynamic over the next 12 months.

What This Means for Buyers and Renewals

New Buyers: Lower fixed rates reduce stress test hurdles, improving affordability for first-time buyers. For someone eyeing a $600,000 home, a shift from 4.5% to 3.9% can mean hundreds of dollars saved monthly.
Renewals: Canadians facing renewals this fall may find more competitive options than just a few months ago. Shopping around is critical, as rate differences between lenders remain wide.
Refinancing: Those looking to consolidate debt or tap equity may find fixed terms far more attractive than earlier in 2025.

The drop in bond yields and the looming BoC rate cut are finally putting downward pressure on mortgage costs. For borrowers, it’s a reminder that timing and strategy matter: choosing between a fixed or variable mortgage now depends on how quickly and how far the central bank goes with cuts.

With at least one more cut expected by year-end, Canadians could see mortgage markets slowly turn from pain to relief. But affordability challenges remain — especially in cities like Toronto and Vancouver, where home prices remain historically high.