If you’re looking to purchase a home or renew a mortgage, you’ve no doubt been keeping a close eye on interest rates.
On June 5, 2025, the Bank of Canada announced it would hold its key overnight rate — an annoucement that effectively kept the prime rate at 4.95%. The BoC’s decision to maintain a pause that began earlier this year was due, in part, to going efforts to tame inflation, which has cooled from its peak but remains above the BoC’s 2% target.
While this rate hold may offer some short-term relief to borrowers, it doesn’t mean rates will drop immediately. As the Bank stated, “Governing Council is still concerned about risks to the outlook for inflation and wants to see further and sustained easing in core inflation.”
Since January 2022, the BoC has the overnight rate raised interest rates from 0.25% to 2.95% — a dramatic shift that has reshaped Canada’s housing market and strained affordability for both buyers and existing homeowners.
Why interest rates matter
This latest rate hold signals cautious optimism, but also reinforces that borrowers should not expect a quick return to ultra-low rates. Fixed and variable mortgage rates remain elevated, and many Canadians are adjusting their homebuying strategies accordingly.
Some market watchers hope this pause will create more stability in the housing market. But with mortgage renewals looming for many homeowners, affordability remains a pressing concern.
Link between house prices and interest rates
Historically, there’s been an inverse relationship between the BoC’s interest rates and home prices. As the Bank rate rises, home prices decline. So, the question for many would-be home buyers is why rapidly raising rates over the last year haven’t prompted a much larger reduction in home prices, particularly in higher-priced markets such as Toronto and Vancouver.
The answer to this can be found on the supply side.
While active inventory in Toronto has gone up in 2025, the number of listings is still nowhere close to record levels seen in 2008. For instance, in 2008, there were more than 25,000 active listings. Compare this to the 14,000 active listings in 2023.
Despite higher interest rates slowing the boom, that high demand and lack of supply continues to drive home prices upward, making housing unaffordable in some regions.
If you’re considering a home purchase, today’s environment offers a bit more predictability — but not necessarily affordability. Rates aren’t climbing for now, but with home prices still high in major markets like Toronto and Vancouver, experts stress the importance of staying within your budget and planning for sustained borrowing costs.
If you’re buying a home: Shop carefully and prioritize affordability
After years of rising interest rates, the housing market is adjusting — but not crashing. Prices in key markets like Toronto and Vancouver remain elevated, and the cost of borrowing has made many first-time buyers rethink what they can afford.
Tips for buyers:
- Get pre-approved with a lender before house hunting — this locks in your rate for up to 120 days.
- Stick to a realistic budget. Just because you’re approved for a million-dollar mortgage doesn’t mean you should take it.
- Consider a shorter mortgage term (e.g., 1 to 3 years) if you believe rates may fall within that period.
- Review stress test requirements. You’ll need to qualify at either 5.25% or your contract rate +2% — whichever is higher.
“Look for the best opportunity in the market that will allow you to build equity and eventually graduate to the next level,” says Adil Dinani, a real estate agent with Royal LePage West.
If you’re renewing your mortgage: Expect a payment shock
Many Canadians coming up for renewal in 2025 are facing significantly higher rates than they locked in five years ago. Even with the Bank holding steady, today’s renewal rates are hovering between 5.5% and 6.25% for fixed terms.
Tips for those considering a mortgage renewal:
- Compare multiple lenders — don’t just auto-renew with your current provider.
- Negotiate. Lenders may offer rate discounts or flexible terms to retain your business.
- Consider a variable-rate mortgage if you plan to sell soon—penalties are often lower if you need to break the mortgage.
- Adjust your amortization if needed to keep payments manageable—but be aware this may increase total interest over time.
If you need to refinance: Know your options and costs
High interest rates can make refinancing challenging—but sometimes, it’s still the best option, especially if you’re consolidating higher-interest debt or need funds for renovations or emergencies.
Tips for those looking to refinance:
- Tap into equity cautiously. With home prices stabilizing, some homeowners may not have as much room to borrow as before.
- Expect higher monthly payments. Today’s refinancing rates are often the same or higher than renewal rates.
- Ask about blend-and-extend options, which combine your current rate with today’s rate to soften the jump.
- Watch for penalties. Breaking a fixed-rate mortgage early can be costly — often thousands of dollars in prepayment charges.
The bigger picture
Even with a rate hold, the Bank of Canada continues to monitor inflation closely. In its June announcement, the Bank noted: “Governing Council is still concerned about risks to the outlook for inflation and wants to see further and sustained easing in core inflation.”
That means interest rate cuts aren’t guaranteed anytime soon — and borrowers should be prepared for higher borrowing costs to persist into 2026.
Bottom line
The Bank of Canada’s rate hold offers a pause—not relief. Whether you’re entering the housing market, renewing your mortgage, or refinancing to manage debt, it’s critical to:
- Run the numbers.
- Focus on long-term affordability.
- Seek professional mortgage advice if needed.
A stable rate may bring temporary calm — but planning for volatility is still the smart move.
Sources
1. TRREB: Marketwatch
2. TRREB: Market news
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
