Bond yields are climbing and the central bank is set to stay on hold. Should the mortgage market get used to higher rates?
It’s not uncommon for a wave of intrigue to develop around Bank of Canada interest rate announcements as financial market watchers speculate on whether the central bank will hike, hold, or cut.
But few are expecting any surprises from the Bank’s next decision, scheduled for Wednesday (July 30), with another rate hold viewed as a near certainty after inflation ticked up last month and employment data came in hotter than expected.
The Bank has left rates unchanged in its last two decisions, halting a run of seven consecutive cuts, and there seems little chance of big further reductions between now and the end of the year.
Among Canada’s leading banks, Royal Bank of Canada (RBC) and Scotiabank expect that the central bank will keep rates where they are for the rest of the year. TD, Canadian Imperial Bank of Commerce (CIBC) and Bank of Montreal (BMO) all see two cuts between now and January, which would bring the benchmark rate down to 2.25%.
With that policy rate directly impacting variable mortgage rates in Canada, few mortgage brokers are advising their clients that rates will nosedive anytime soon.
That June jump in inflation, coupled with the labour market’s continuing resilience despite tariff and trade turbulence, “effectively threw cold water on Bank of Canada moves,” TMG The Mortgage Group’s Max Singh (pictured top) told Canadian Mortgage Professional.
Housing forecast clouded by stubbornly high mortgage rates
The prospect of higher rates for longer is helping keep a lid on housing market activity – and the outlook isn’t much brighter for fixed mortgage rates, which have also ticked upwards in recent weeks as the bond market absorbed worrying signs in the ongoing trade war with the United States.
Hopes were high earlier in the year that borrowers would eventually see some welcome rate relief, but they’ll now likely have to grapple with higher-for-longer costs amid those climbing bond yields.
Canada’s housing market will continue its cooling trend through 2025, driven by trade tensions, economic uncertainty and slower population growth, according to Canada Mortgage and Housing Corporation’s (CMHC’s) summer market outlook released Thursday.https://t.co/q2T412gOvu
— Canadian Mortgage Professional Magazine (@CMPmagazine) July 25, 2025
At time of writing, the five-year Government of Canada bond yield, a key indicator for fixed rates, sat at 3.07% – up from just over 2.73% at the end of April.
That trend is seeing major banks increase their fixed mortgage rates, and Singh said it’ll have big implications in the months ahead for borrowers whose mortgage is coming up for renewal.
“In the second half of 2025 and 2026, [homeowners’] hope of renewing at a lower interest rate is falling quickly,” he said. “We have a number of clients who are coming up for renewal later in the year and I’m suggesting to them based on that trend… it might make sense in certain scenarios to break their lower-interest-rate term because the fear is that the renewal rate will be so substantially higher by the time of their maturity.
“When they contact us to ask questions about their mortgage renewal coming in September, October, November – before, I used to say, ‘It’s six of one and half a dozen of the other.’ But if their 1.99% is coming up for renewal in September, their renewal rate going forward is going up in a quicker fashion than their current pricing.”
Lenders, brokers come to the fore as renewal wave looms
The good news: while rates are climbing, Singh said communication to borrowers from their financial institutions has been clear and deliberate, something that’s keeping homeowners fully apprised about their options even months before their renewal is due.
“I’m suggesting [to clients] that they reach out to their respective institutions and maybe start the conversation of what renewal pricing would be instead of three months prior to maturity,” he said.
“And that communication from all the banks, lenders, and brokers at present – that’s helping stave off a crisis later down the road.”
For now, few market watchers are banking on a sudden swing towards lower rates on either the fixed or variable side in the months ahead, particularly as trade tensions between Canada and the US continue to escalate.
“I’m projecting very little to no rate decreases until there’s clarity as to which direction is going and really what the end cost of goods will be,” Singh said. “But of course, we’re not in control of that right now.”
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