Fixed Mortgage Rates Rise Above 4% as Bond Yields Push Higher Across Canada

December 11, 2025 —

Fixed mortgage rates in Canada have climbed above 4% once again, following a fresh surge in Government of Canada bond yields. The move has raised borrowing costs for homebuyers heading into 2026, and it adds new pressure on households planning renewals over the next several months. While fixed rates are reacting quickly to market conditions, variable mortgage rates remain anchored because the Bank of Canada kept its policy rate unchanged on December 10. This creates a widening gap between how the two product types behave—and why borrowers may want to understand the difference.

Why Fixed Rates Are Climbing

Fixed mortgage rates are tied to the bond market rather than the Bank of Canada’s overnight rate. When economic data—such as employment numbers, GDP growth, or inflation readings—comes in stronger than expected, investors adjust their expectations about future interest rates. That pushes bond yields higher. Over the past two weeks, several economic indicators signalled that Canada’s economy may be more resilient than anticipated, and that inflation could take longer to fully settle near the Bank’s 2% target.

Bond yields responded quickly, rising enough to force lenders to increase the cost of fixed mortgages. Some lenders had already hinted at upward pressure, but by early December, five-year fixed rates from major institutions moved beyond 4%, reversing part of the decline borrowers saw earlier this fall.

For anyone taking a fixed mortgage, the rise means higher monthly payments and stricter debt-service ratios during approval, making affordability more challenging in already high-priced markets such as Toronto, Vancouver, and Victoria.

Why Variable Rates Aren’t Moving

Variable mortgage rates, by contrast, are tied directly to the Bank of Canada’s policy rate, which remained unchanged at 2.25% in the December announcement. Because lenders peg their prime rate to that overnight rate, variable mortgage payments stay mostly stable unless the Bank adjusts its policy.

This creates a divided environment: fixed rates are reacting to real-time market expectations, while variable rates are waiting for formal policy decisions. For borrowers watching both options, it may feel confusing that the two directions don’t match—but this is how the system is designed.

Variable rates will only shift when the Bank believes inflation trends are durable and sustainable enough to influence monetary policy. At the moment, policymakers want more evidence before considering any future cuts or increases.

Impact on Homebuyers and Renewals

Higher fixed rates heading into 2026 present several challenges:

First-time buyers may find it harder to qualify under the stress test, which still requires borrowers to qualify at the greater of 5.25% or two percentage points above their contract rate. With contract rates above 4%, qualification becomes more difficult.

Renewing homeowners face a situation where fixed rates are higher than they expected just a month or two ago. Many who renewed early in 2025 managed to lock in lower rates; those renewing in mid-2026 will want to monitor the bond market closely and consider early holds.

Refinancers looking to consolidate debt or fund renovations may find the economics tougher. Higher borrowing costs can reduce the amount of equity that makes sense to pull out.

What Borrowers Should Watch Next

Several key indicators will shape where mortgage rates head next:

1. Bond yields over the next few weeks. If yields stabilize or drop, fixed mortgage rates may ease again.
2. Upcoming inflation reports. These will heavily influence whether the Bank of Canada considers shifting policy in early 2026.
3. U.S. economic data. Canadian bond markets track U.S. movements closely, so strong U.S. numbers can keep pressure on yields here.
4. Employment trends. A strong labour market can delay rate relief, while softer job data can pull yields lower.

While the Bank of Canada has paused its policy rate, fixed mortgage rates are being shaped by market forces that operate independently of central bank decisions. With five-year fixed rates now above 4% and variable rates holding steady, borrowers heading into 2026 should take time to explore their options carefully. Whether you’re choosing between fixed and variable or preparing for a renewal, understanding how bond yields influence your payments can help you make balanced, confident decisions.