In an unusual twist in Canada’s mortgage market, fixed mortgage rates are on a downward trajectory while variable-rate pricing is tightening. This divergence presents both opportunities and challenges for homeowners approaching mortgage renewal.
If you’re shopping for a mortgage renewal, there’s some good news: Fixed rates are on the way down.
Over the past few weeks, lenders have been quietly cutting their three- and five-year fixed rates by 10 to 20 basis points. Why? Falling bond yields and a fiercely competitive spring market have banks and monoline lenders scrambling to attract borrowers. Mortgage analyst Ron Butler put it simply in Mortgage Rate Trends: "The spring market starts now."
With lenders vying for borrowers, now might be the time to lock in a deal.
Variable-rate discounts shrink despite rate cuts
While there were three consecutive Bank of Canada rate cuts — in December 2024, as well as in January and March 2025 — variable-rate mortgages are experiencing a reduction in discounts. So, despite the Bank of Canada lowering its overnight rate by 25 basis points in March, many lenders decreased the discounts offered on variable rate mortgages and loans. This adjustment is partly due to widening credit spreads, which increase borrowing costs for lenders. Now, with the Bank of Canada holding its target rate at 2.75% — keeping bank prime rates around 4.75% to 4.95% — first-time homebuyers, those renewing their mortgage and borrowers need to aggressively comparison shop for the best interest rates. The biggest takeaway is that a new variable-rate mortgage may not be as cost-effective as anticipated.
To help, be sure to compare current variable-rate mortgages or fixed-rate mortgages to get the lowest rate.
Historical context and future outlook
Historically, fixed and variable mortgage rates in Canada have often moved in tandem, influenced by factors such as the Bank of Canada’s policy decisions and economic conditions. However, instances where fixed rates fall while variable rates rise are less common.
This current divergence is primarily driven by the interplay between declining bond yields affecting fixed rates and increased credit spreads impacting variable rates.
Looking ahead, the trajectory of mortgage rates will depend on a mix of domestic and international economic factors. While bond yields have been declining, largely in anticipation of further Bank of Canada rate cuts, broader global economic uncertainty is keeping lenders cautious. Several elements could influence mortgage rates in the coming months:
- Tariffs and trade uncertainty: Since taking office, U.S. President Donald Trump has reintroduced tariffs on Canadian exports, escalating a trade war that threatens economic stability. These measures could slow economic growth, potentially prompting the Bank of Canada to maintain or accelerate rate cuts. However, supply chain disruptions and increased costs for Canadian businesses may also contribute to inflation, complicating rate decisions.
- U.S. economic policy and market volatility: Trump’s administration has implemented a series of protectionist policies, causing increased market volatility. A stronger U.S. dollar and investor flight to safe-haven assets have pushed bond yields higher, which could put upward pressure on fixed mortgage rates in Canada.
- Domestic economic strain: Rising household debt, slower economic growth and a cooling job market could push the Bank of Canada toward more rate cuts. However, stubborn inflation —especially in housing and energy — may limit how aggressively the central bank can lower rates.
Advice for homeowners approaching renewal
For those with mortgages up for renewal in the coming months, consider the following:
- Evaluate rate options: With fixed rates decreasing, locking in a fixed rate might offer predictable payments and potential savings.
- Assess financial flexibility: If considering a variable rate, ensure your budget can accommodate potential rate fluctuations, given the current reduction in variable-rate discounts.
- Consult a mortgage professional: Engage with a mortgage advisor to explore personalized options and navigate the complexities of the current market.
With economic uncertainty playing a key role in interest rate movements, homeowners renewing their mortgages in 2025 should stay informed and be prepared for potential shifts in borrowing costs.
Sources
1. Mortgage Rate Trends: Mortgage rate war heats up as big banks slash rates — “The spring market starts now”: Butler (March 18, 2025)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
