If you’ve been watching mortgage rates lately and feeling confused, you’re not alone. The recent decision by U.S. President Donald Trump to pause new tariffs on Canadian and Mexican imports may have offered a short-term sigh of relief—but it hasn’t done much to calm broader financial markets. In fact, the uncertainty surrounding North American trade has only deepened, especially when it comes to borrowing costs for Canadians.

As trade tensions between the U.S. and Canada escalate, so does economic volatility. Mortgage lenders, the Bank of Canada, and everyday homeowners are all trying to navigate a rapidly shifting landscape. So what does this mean for your mortgage, and what should you do about it? Let’s break it down.

A Pause, But Not Peace

Trump’s 30-day delay on implementing 25% tariffs on Canadian goods might look like a diplomatic gesture on the surface. But behind the scenes, this move has done little to restore long-term confidence. The reality is, this pause could be temporary—and many expect tariffs to move forward once the deadline passes.

For investors, businesses, and even central banks, the message is clear: the trade environment remains unstable. And when trade becomes a political bargaining chip rather than a predictable economic tool, that instability trickles down into everything—including mortgage rates.

How U.S. Economic Fears Spill Over Into Canadian Mortgages

You might be wondering why U.S. tariffs—even just the threat of them—matter so much to the Canadian housing market. The answer lies in how interconnected the economies are. Tariffs create inflation by driving up the cost of imported goods. That inflation can influence interest rate decisions made by both the U.S. Federal Reserve and the Bank of Canada.

If inflation rises sharply in the U.S., the Fed might hold rates higher for longer, which impacts global bond markets. That ripple effect raises fixed mortgage rates in Canada. Meanwhile, the Bank of Canada has already cut its policy rate to 3%, but if a full-blown trade war triggers a recession, further rate cuts may be on the horizon.

A weakening Canadian dollar only adds to the problem. If the loonie drops in value, the cost of imported goods goes up—potentially pushing inflation higher here too. All of this means the BoC will have to carefully weigh whether to support growth with more rate cuts or hold steady to manage inflation. That uncertainty creates a very mixed outlook for borrowers.

Why a U.S. Slowdown Is a Canadian Concern

Even without formal tariffs in place yet, the fear alone is already impacting investment and business decisions. When companies hesitate to invest, jobs don’t get created, supply chains freeze up, and the economy slows.

Canada’s GDP growth is already projected to take a hit if tariffs move forward. Some economists believe we could see a four-point decline over two years—enough to push us toward a mild recession. The manufacturing and auto sectors, which are tightly connected across the border, are especially vulnerable.

Then there’s the impact on households. According to the Canadian Chamber of Commerce, new tariffs could add nearly $2,000 in extra annual costs to the average Canadian family. That squeeze on budgets makes it even harder to manage rising mortgage payments or qualify for new loans.

What’s Happening in Mortgage and Bond Markets?

The bond market is one of the clearest signals of where interest rates are heading. And right now, Canadian bond yields are dropping fast. The two-year Government of Canada bond yield just hit its lowest point since April 2022, signalling investor pessimism about near-term economic growth.

This shift is already being priced into money markets. Traders expect the Bank of Canada to cut rates again at its next meeting, with some even predicting an emergency cut if conditions worsen. Market forecasts are now calling for up to 75 basis points in rate cuts by the end of the year. In more extreme scenarios, analysts at BMO say rates could drop to as low as 1.50% if a full tariff schedule is enacted.

That might sound like good news for borrowers. Lower rates often mean lower monthly payments. But here’s where it gets tricky—if inflation also rises, lenders may choose to hold back on lowering fixed mortgage rates, or they might tighten lending criteria to protect their margins.

What This Means for Borrowers

If you’re thinking of buying a home or renewing your mortgage, now is a critical time to pay attention.

In the short term, variable mortgage rates could fall if the Bank of Canada cuts its policy rate again. We’ve already seen some lenders—including nesto—lower their 5-year fixed rates by as much as 20 basis points in anticipation. More cuts are likely if the economy slows.

But don’t assume rates will stay low forever. If inflation climbs due to increased import costs, lenders may raise fixed rates again or reduce discounts to cushion their risk. That could make mortgages more expensive down the road—even if the central bank cuts rates again.

In this type of environment, borrowers need to be strategic. Consider your financial goals, the term of your mortgage, and how much rate fluctuation you can realistically handle. Whether it’s locking in now for stability or going variable to ride future cuts, the best move is the one tailored to your lifestyle and risk tolerance.

Markets may shift based on global headlines, but it’s the BoC that pulls the actual levers. Our explainer on how the Bank of Canada influences your mortgage rate gives you a clearer picture of what’s happening behind the scenes.

Preparing for Mortgage Market Volatility

Toronto buyers, Calgary upgraders, and Vancouver refinancers all face the same question: What do I do now that everything’s so uncertain?

This is where a proactive approach becomes your best weapon. Rate cuts are helpful, but only if you act in time. The 30-day tariff delay may be temporary, but its long-term consequences could influence rate trends for years.

If bond yields continue to fall, more mortgage lenders could drop insured and uninsured rates below 4% in the coming weeks. But if tariff threats turn into policy, and inflation takes off, that window of opportunity might close fast.

Now is the time to review your mortgage strategy with a professional. Whether you’re approaching renewal, looking to refinance, or entering the market for the first time, a personalized plan could help you avoid surprises—and lock in savings while you still can.

Unsure how market volatility could affect your borrowing power? Schedule a free consultation with a licensed mortgage advisor to get expert, personalized guidance tailored to your situation.