Canada Mortgage Interest Rate Forecast: 2026-2030
Today's Mortgage Rates
| 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 4-Year Fixed | 5-Year Fixed | 5-Year Variable | |
|---|---|---|---|---|---|---|
| Lowest Rates | % | |||||
| Average Rates (10 Lenders) | ||||||
| 30-Days Change of Average Rates |
| Term | Lowest Rates | Average Rates (10 Lenders) | 30-Days Change of Average Rates |
|---|---|---|---|
| -Year Fixed | % | % | NaN bps lower |
| -Year Fixed | % | % | NaN bps lower |
| -Year Fixed | % | % | NaN bps lower |
| -Year Fixed | % | % | NaN bps lower |
| -Year Fixed | % | % | NaN bps lower |
| undefined-Year Variable | % | % | NaN bps lower |
The basket of 10 lenders includes: , BMO, TD, Scotiabank, RBC, National Bank, Desjardins, nesto, Tangerine, First National.
Forecast of Lowest Mortgage Interest Rates as of January 6, 2026
| Date | BoC Rate | Prime Rate | 5-Year Variable | 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 5-Year Fixed |
|---|---|---|---|---|---|---|---|
| 2026-01-09 | 2.25% | 4.45% | 3.4% | 4.69% | 4.29% | 3.64% | 3.79% |
| 2026-06-30 | 2.25% | 4.45% | 3.4% | 4.55% | 4.48% | 3.91% | 4.01% |
| 2026-12-31 | 2.5% | 4.7% | 3.65% | 4.75% | 4.63% | 4.02% | 4.11% |
| 2027-06-30 | 2.75% | 4.95% | 3.9% | 4.89% | 4.74% | 4.11% | 4.2% |
| 2027-12-30 | 2.75% | 4.95% | 3.9% | 4.99% | 4.81% | 4.19% | 4.29% |
| 2028-06-30 | 2.75% | 4.95% | 3.9% | 5.06% | 4.88% | 4.27% | 4.36% |
| 2028-12-30 | 3% | 5.2% | 4.15% | 5.12% | 4.95% | 4.35% | 4.43% |
| 2029-06-30 | 3% | 5.2% | 4.15% | 5.18% | 5.03% | 4.43% | 4.51% |
| 2029-12-31 | 3% | 5.2% | 4.15% | 5.26% | 5.12% | 4.51% | 4.58% |
| 2030-06-30 | 3.25% | 5.45% | 4.4% | 5.36% | 5.2% | 4.59% | 4.66% |
| 2030-12-30 | 3.25% | 5.45% | 4.4% | 5.38% | 5.23% | 4.63% | 4.67% |
| This table is populated based on the forward CORRA (Canadian Overnight Repo Rate Average) on January 5, 2026. These forecasts change frequently as market prices change. In making these forecasts, we have assumed the risk premium and the term premium to stay constant and market expectation of the risk-free rate to be correct. Note: The forecast data in this section is updated regularly based on market prices, typically every week. Interpretations and summaries may not reflect the most recent updates. For the latest insights, please refer to the forecast table directly. | |||||||
How Does the Market Think About Future Rates?
Changes in the Bank of Canada (BoC) policy rate as implied by the forward contracts on Canadian Overnight Repo Rate Average (CORRA) as of January 5, 2026.
| Fixed Announce-ment Date | Likelihood of BoC policy rate at | is | Likelihood of BoC policy rate at | is |
|---|---|---|---|---|
| 2026-01-28 | 2% | 6% | 2.25% | 94% |
| 2026-03-18 | 2% | 15% | 2.25% | 85% |
| 2026-04-29 | 2% | 15% | 2.25% | 85% |
| 2026-06-10 | 2% | 9% | 2.25% | 91% |
| 2026-07-15 | 2.5% | 1% | 2.25% | 99% |
| 2026-09-02 | 2.5% | 17% | 2.25% | 83% |
| 2026-10-28 | 2.5% | 37% | 2.25% | 63% |
| 2026-12-09 | 2.5% | 55% | 2.25% | 45% |
Tariffs' Effect on Interest Rates (Updated November 2025)
Canada–US Trade and Specialization Background
Since the North American Free Trade Agreement (NAFTA) took effect in 1994, Canada’s economy has become increasingly integrated with and specialized within North American production chains, particularly in relation to the United States. Resource sectors such as oil and gas (including oil sands), mining, and forestry expanded, while manufacturing shifted toward higher‑value and more capital‑intensive activities closely linked to these resource industries. The auto sector remained central but moved further into specialized component and intermediate‑goods production that crosses the border multiple times, reinforcing Canada’s exposure to US trade policy changes.
This specialization is also regional. Western Canada became more focused on energy and other natural resources. Ontario retained advanced manufacturing but lost much of its lower-wage, traditional manufacturing base. Quebec strengthened its aerospace and high-tech clusters. Because many of these activities are integrated into cross‑border value chains rather than stand‑alone domestic industries, Canada is particularly vulnerable to broad US tariff shocks that disrupt both exports and investment.
Evolution and Transition of US Tariffs on Canada in 2025
The US tariff approach evolved significantly through 2025, from broad initial threats to refined, differentiated tariffs largely framed around CUSMA compliance:
- March 4: The US imposed a broad 25% tariff on non-energy Canadian goods, excluding energy products (which faced 10% tariffs); Canada's retaliatory 25% tariffs on targeted US goods totalling C$30 billion took effect simultaneously.
- March 7: An exemption for CUSMA-compliant products from the March 4 IEEPA tariffs was announced, marking a shift from blanket tariffs to compliance-based tariffs (this exemption did not apply to the steel and aluminum tariffs).
- March 12: The US imposed a 25% steel and 25% aluminum tariff globally, including on Canada (under Section 232). Canada responded by imposing 25% retaliatory tariffs on US steel, aluminum, and certain other goods, effective March 13.
- April 3: 25% US auto tariffs were imposed. Similar to steel and aluminum, the CUSMA exemption did not apply to these sectoral auto tariffs (under Section 232), meaning they applied to all Canadian imports in the specified categories.
- August 1: The IEEPA tariff on non-CUSMA Canadian goods increased from 25% to 35% (The 10% tariff on energy/critical minerals remained at 10%).
- October 25: The US announced a 10% tariff increase on a wide range of Canadian goods in retaliation for an Ontario anti-tariff ad campaign, intensifying regional trade tensions. No definite date is set for the imposition of this additional tariff.
💰 Impact on Monetary Policy and Economy
The Bank of Canada (BoC) navigates a mixed inflation environment, where tariffs create both persistent cost pressure and a drag on demand:
- Tariffs and currency effects lift prices for many goods, creating upward inflation pressure in headline rates (a cost-push effect).
- Conversely, trade disruptions, investment delays, and employment headwinds depress underlying demand and inflation over time, prompting monetary easing (rate cuts) to support growth.
- Crucially, the trade conflict is causing structural damage to the Canadian economy. By reducing exports and long-term business investment, the nation's productive capacity and potential output are diminished, which limits the ability of monetary policy to stimulate demand without risking future inflationary overshoot.
- Fiscal policy and targeted relief measures moderate adverse impacts without substantially fueling inflation, helping maintain a delicate balance in inflation expectations.
- The ongoing tariff threats, including recent Ontario-specific escalations, create sustained uncertainty, regionally uneven labour market impacts, and require continued close monitoring by policymakers.
Looking Forward
The Canada-US trade relationship is entering a period of prolonged structural transition, meaning the likely outcomes over the next 3 to 4 years will be defined less by short-term tariff removal and more by enduring shifts in supply chains, investment, and economic performance.
The outlook for 2026-2029 is dominated by two main factors: the 2026 CUSMA (USMCA) Review and the lasting structural damage to the Canadian economy from the 2025 tariffs.
Here are the most likely outcomes over the next three to four years, based on current analysis:
1. 📉 Economic Slowdown and Structural Damage (2026-2027)
The most immediate and persistent outcome is a lower potential growth path for Canada compared to pre-2025 forecasts.
- Subdued GDP Growth: Canada's GDP growth is projected to average around 1.4% in 2026-2027, which is a significant downward revision from previous expectations. This slow growth will continue to create a sluggish labour market and suppress household spending.
- Permanent Reduction in GDP: The current level of trade uncertainty and tariffs is anticipated to cause a permanent reduction in the level of Canadian GDP (estimated to be about 1.5% lower by the end of 2026 compared to a "no-tariff" scenario). About half of this is due to structural damage—the inefficient reallocation of capital and labour—not just a cyclical downturn.
- Sticky Inflation: The Bank of Canada will continue to face the dilemma of cost-push inflation (tariffs raising prices) and demand-pull disinflation (trade weakness lowering aggregate demand). This will keep core inflation elevated and complicate the BoC's monetary policy, limiting the extent of future rate cuts.
- Sectoral and Regional Stress: The pain will remain concentrated. Ontario and Quebec (especially their auto, steel, and manufacturing sectors) and the softwood lumber industry will continue to bear the brunt of the trade friction, leading to uneven regional employment impacts.
2. 🤝 CUSMA (USMCA) Review and Negotiation Uncertainty (2026)
The mandatory six-year review of CUSMA (USMCA) in 2026 will be a critical inflection point, likely resulting in prolonged uncertainty.
- Contentious Negotiations: A "straightforward renewal" is considered highly unlikely. Experts anticipate a period of contentious renegotiation dominated by hardline rhetoric and potential threats of invoking Article 34.6 (Withdrawal) by the US. Key flashpoints will be rules of origin for autos/EVs, dairy access, and government procurement.
- Prolonged Uncertainty: Even if a deal is reached, the negotiation is likely to drag out, prolonging the trade uncertainty that has already stalled Canadian business investment and hiring.
- Escalation Risk: If negotiations fail or stall badly, there is a risk of a further escalation of punitive tariffs on additional Canadian sectors (e.g., more consumer goods, pharmaceuticals, or minerals), leading to a higher average tariff rate on Canadian exports.
3. 🌐 Long-Term Shift: Diversification and Resilience
The Canadian government and businesses will increasingly pursue policies to reduce reliance on the US market. This will be a defining trend for the next four years.
- Supply Chain Reconfiguration: Canadian companies will accelerate efforts to reconfigure supply chains to "de-risk" from the US and/or establish domestic production capacity, often supported by targeted federal and provincial relief measures (e.g., incentives for using Canadian steel and lumber).
- Market Diversification: There will be a sustained push to break into new international markets (Asia, EU, South America) to lessen the impact of US volatility.
- Increased Domestic Protection: Canada will continue to use its own trade defence tools, such as new global tariffs on targeted steel-derivative products and tougher border measures to combat foreign steel dumping, effectively onshoring some of the protectionism.
4. ⚖️ Legal and Political Factors
Beyond economics, legal challenges may alter the playing field, although they are unlikely to eliminate the tariffs entirely.
- IEEPA Legal Challenge: The US Supreme Court is expected to rule on the constitutionality of the tariffs imposed under the International Emergency Economic Powers Act (IEEPA) in late 2025/early 2026. If the Court rules against the administration, it could mandate the refund of some duties and force the US to pivot to alternative trade statutes (like Section 232 or 301) to maintain tariff pressure, meaning the underlying trade dispute continues.
In summary, the next 3-4 years are likely to be characterized by sub-par economic growth in Canada as the economy adjusts to a permanently lower trade relationship with the US, dominated by the high-stakes negotiations and uncertainty surrounding the 2026 CUSMA review.
What You Should Know
- By 2022, the long-term trend of declining yields had ended, and we are unlikely to see low rates like those of 2020-2021 or 2009-2010 again.
- In July 2023, the overnight interest rate climbed to 5%, the highest since 2001. The Bank of Canada (BoC) had to raise rates because inflation was very high and the labour market was very tight.
- By June 2024, inflation had significantly declined, and significant slack had been created in the labour market. Thus, the BoC started lowering its policy rate.
- By January 2025, the policy rate of 3% was close to what could be considered neutral. However, with the U.S. becoming an unreliable trading partner and in the absence of significant domestic reform, Canada was facing a less efficient economy, which implies a lower neutral rate.
- Further tariffs threaten to throw the Canadian economy out of equilibrium, and restoring balance would likely require lower rates as some of the past investments lose value and new investments become necessary.
- In November 2025, BoC considers its policy rate of 2.25% to strike the right balance between supporting an economy wounded by Trump tariffs and simultaneously facing manageable but broad-based inflationary pressure.
Canada’s Response and Current Tariff Status
Canada initially matched US tariff actions with retaliatory tariffs primarily targeting US steel, aluminum, autos (non-CUSMA), and selected consumer and agricultural products. Most Canadian retaliatory tariffs (the March 4/Phase 1 tariffs and non-metal products from Phase 2) were removed effective September 1, except for those on steel, aluminum, and autos, which remain in effect. Canada also announced new support measures to mitigate impacts on its lumber, steel, and manufacturing sectors.
US tariffs currently in effect:
- Up to 35% IEEPA tariffs on non-CUSMA-compliant Canadian imports (10% for energy/potash); PLUS separate sectoral tariffs (e.g., 25% on non-CUSMA autos, 50% on steel/aluminum, new tariffs on softwood lumber/potash).
- 40% penalty tariffs on goods found to be transshipped to evade tariffs.
- 10% IEEPA tariff increase on a wide range of Canadian goods over the Ontario ad campaign (effective October 25).
- Canada continues to impose retaliatory tariffs averaging 25% on targeted US imports (steel, aluminum, non-CUSMA autos).
Bank of Canada Rate Forecast for 2026: Stability in policy rate with a high degree of economic uncertainty
As of November 2025, inflation is fluctuating between 1.7% and 2.4% around the Bank of Canada’s (BoC) 2% target, while measures of core inflation are significantly higher 2.5% and 3.2%. The policy rate of 2.25% is bordering on the stimulative range as BoC faces its core policy dilemma of cost-push inflation vs. demand-pull disinflation. While a year ago the only persistently rising component of CPI inflation was shelter, today inflation is broad-based with Shelter, food and household operations all registering double-digit contributions to the headline CPI inflation.
Given the trade uncertainty and as a result policy dilemma of cost-push inflation vs. demand-pull disinflation, which would most likely continue through 2026, the policy rate is unlikely to experience significant change over the course of 2026. At the same time, forecasting the trajectory of the Canadian economy in 2026 is highly challenging.
Importance of Mortgage Rates
Canadian homes’ average price is around $670k. Thus, an average home buyer who has saved over 20% ($150k) for their down payment to reduce their risk and save on mortgage insurance premiums requires a mortgage of around $520k.
Currently, Canada’s interest rate environment is such that advertised mortgage rates range from 4.14% to over 6.5%. So if you are shopping for a mortgage, 4.5% is a reasonable rate depending on the term and features of your mortgage.
WOWA’s mortgage interest calculator shows that conservatively buying an average house with a competitive mortgage rate and a typical 25 year amortization would translate into a monthly mortgage payment of $2,880, initially including $1,930 in interest costs.
The median after-tax income for a Canadian family is $70.5K per year, around $5,880 per month. It is easy to see that mortgage expenses are the most significant expense for a Canadian family (49% for mortgage payment). The mortgage expense is much more for those living in the most expensive Canadian population centers of the Greater Toronto Area (GTA) and the Greater Vancouver Area (GVA). So optimizing your mortgage expense might be the most effective way of improving your finances.
Deducing Market Expectations
Financial institutions consider both depositing money with the Bank of Canada (BoC) and buying treasuries as risk-free investments. When managing their liquidity, these institutions will choose whichever option offers the higher yield. According to the expectations hypothesis, the yield on a Canadian Treasury bill should equal the average of expected BoC rates over the T-bill's maturity period.
This relationship enables us to derive market expectations for the BoC's target policy rate by analyzing money market instrument yields. While various interest rates exist in the market, some provide more direct insights into expected future rates.
The Canadian Overnight Repo Rate Average (CORRA) forward contract rates offer a particularly efficient method for calculating expected changes in the BoC policy rate. CORRA serves as a key financial benchmark that measures the cost of overnight lending and borrowing between major financial institutions in Canada, with Government of Canada securities serving as collateral.
Key points about CORRA:
- Purpose: CORRA is used to reflect the conditions of the overnight funding market and is a critical reference rate for various financial instruments, including loans, derivatives, and other securities.
- Calculation: CORRA is calculated by taking a trimmed average of the rates on overnight repo transactions that involve Government of Canada securities. This means it excludes the highest and lowest rates to avoid skewed results.
- Benchmark: As a benchmark interest rate, CORRA is an important indicator of monetary policy and financial stability. It helps set the cost of borrowing and lending in the short term.
- Administration: The Bank of Canada oversees the CORRA benchmark to ensure its reliability and accuracy.
- Usage: CORRA is widely used by financial institutions, corporations, and investors to price, trade, and manage interest rate risk in the Canadian financial markets.
Macroeconomic Factors Affecting Interest Rates?
Over the past few decades, technological advancements and globalization have been significant deflationary forces, contributing to a long-term decline in interest rates. Lower rates have facilitated higher levels of debt across the economy. Historically, between 1968 and 2001, interest rates were frequently higher than their 2023 highs. However, the economic landscape has evolved considerably, particularly in Western economies, with Canada experiencing notable structural changes. Debt levels are now substantially higher than in the 20th century, making it increasingly challenging to sustain high-interest rates in the 2020s.
General Government Gross Debt
Total Credit Liabilities of Households
Since 1990, general government debt has expanded 5.5 times, while household debt has surged 8.5 times. The rising household debt burden can be attributed to higher income levels, declining interest rates, and relatively stable debt service ratios. Household income in Canada has been growing significantly faster than the population. Since 1990, the population has increased by approximately 51%, whereashousehold income has surged by 332%. Over the same period, inflation has totalled 102%, meaning that, when adjusted for both inflation and population growth, household income has effectively risen by 42%.
Total Household Income in Canada
However, it is also notable that debt interest payments as a percentage of household income reached their highest level since 1996 in 2023.
Debt Service Ratio for Canadian Households
The total debt service ratio has increased from about 12% in the early 1990s to around 15% recently. Note that interest rates for non-mortgage debt are often much higher than a mortgage. As a result, mortgage and non-mortgage debt service ratios are comparable, while mortgage debts are much larger than non-mortgage debts (about three-quarters of Canadian household debt is mortgage debt).
Nature of Interest Rates
We can think of interest as a price for using money, yet interest differs from rent because money differs from real property. The intersection of the supply and demand curves for rental properties determines rents. Money is different from rental properties because the supply of money is unlimited.
Bank of Canada, Federal Reserve or any other central bank can buy an asset or make a loan by crediting the seller's or borrower's account. In this purchase or loan process, new money is created. More interestingly, when a commercial bank uses depositors’ money to make loans, it creates money. Because the depositors still have their money, while those who have received the loans also have the money and can spend it.
On the other hand, when a central bank sells an asset or receives a loan payment, money is destroyed. Similarly, when a commercial bank receives loan principal payments, money is destroyed (annihilated). This temporary nature of money allows policymakers to set its rent (interest rate).
In Canada, the Bank of Canada (BoC) has several responsibilities. The most important mandate of the Bank of Canada is achieving price stability. BoC has agreed with the Department of Finance to define price stability as having a 2% CPI inflation rate.
Interest Rate Determinants
| Factors that push interest rates higher | Factors that pull interest rates lower |
| High inflation | Low inflation |
| Low savings rate | High savings rate |
| Decreasing trade | Increasing trade |
| Risk of default | Loan security |
| Decrease in labour productivity | Increase in labour productivity |
| High employment | Low employment |
How do Mortgage Lenders Fund Mortgages?
To understand how we can save on our mortgage costs, we should understand how mortgages work in Canada. A bank can use deposits it is holding to lend out a mortgage. The first problem with using depositor money for lending a mortgage is that those who have deposited their funds in a chequing account or a savings account might want their money back at any time.
In contrast, a mortgage borrower would repay his debt on a predetermined schedule over many years. So the bank would have to put aside some money to provide liquidity to its depositors.
Moreover, the bank might lose money on this loan if the borrower fails to make their scheduled payments and becomes delinquent. Thus such a mortgage would increase the amount of capital the bank requires. Still, because the loan is secured by real estate, it is pretty safe, and the added capital requirement it imposes on the bank is relatively small.
The three preceding paragraphs explained how a home equity line of credit (HELOC) works. HELOC interest rates are often slightly higher than the prime rate. Looking at variable mortgage interest rates, we see that most lenders offer rates below the prime rates (and below HELOC rates). OSFI regulation imposes a HELOC limit of 65% of the property value. In comparison, conventional mortgages can be up to 80% of the property value, and high ratio (insured) mortgages can be up to 95% of the property value.
Because of their lower loan-to-value (LTV) ratio, HELOCs pose a lower risk to lenders than mortgages. We know an interest rate comprises a risk-free rate plus a risk premium. So why do HELOCs, despite their lower risk, have a higher rate than residential mortgages?
Mortgage rates in Canada are relatively low in part because legislation created frameworks to transform mortgages into safe and liquid assets. There are two main securitization instruments:
- Under the National Housing Act, lenders can pool insured mortgages to create NHA Mortgage-Backed Securities (NHA MBS), which are guaranteed by CMHC.
- Under the Bank Act, lenders can create special-purpose vehicles and transfer mortgages into these entities to issue covered bonds.
These frameworks reduce mortgage rates through several mechanisms:
First, when mortgages can be easily sold (are liquid), banks face lower liquidity costs. Without securitization, banks would need to hold significant low-yielding liquid assets to offset their illiquid mortgage portfolio, increasing their overall cost of funds. Securitization reduces this need, lowering funding costs.
Second, liquid assets improve banks' risk management. In stress scenarios, banks can sell liquid assets rather than raise expensive emergency capital that would dilute shareholders. This reduced risk translates into lower required returns.
Third, securitization creates standardized, tradeable securities that attract a broader investor base, including pension funds and insurance companies seeking long-term fixed-income assets. This increased demand and competition for mortgage exposure drives down yields.
Finally, the government guarantee on NHA MBS eliminates credit risk for investors, allowing them to accept lower yields than they would demand for direct mortgage exposure.
Together, these factors enable Canadian financial institutions to offer mortgages at rates materially lower than their prime lending rates.
What About Fixed Rate Mortgages?
Covered bond programs reduce funding costs for Canadian lenders by transforming their mortgage assets into liquid assets. However, lenders face another challenge: many borrowers want fixed-rate mortgages, while a lender's cost of funds typically varies with market interest rates. This creates interest rate risk that lenders must manage.
Since the interest rates paid on deposits and other funding sources typically move with market rates, using these variable-rate funding sources to make fixed-rate mortgage loans creates interest rate risk for the lender. To manage this mismatch, banks use various hedging strategies.
Interest rate swaps are a key tool for hedging this risk. These contracts allow banks to exchange variable-rate interest payments for fixed-rate interest payments. Several types of swaps exist in financial markets:
- Interest Rate Swaps: Exchange fixed and floating interest payments based on a notional principal amount
- Currency Swaps: Exchange principal and interest payments between different currencies
- Commodity Swaps: Exchange cash flows based on commodity prices
- Equity Swaps: Exchange cash flows based on stock or index performance
- Credit Default Swaps: Exchange payments based on credit events like defaults
A particularly important type of interest rate swap is the Overnight Index Swap (OIS). In an OIS, parties exchange the difference between an overnight interest rate index and a fixed rate. The overnight rate is typically a benchmark like CORRA (Canadian Overnight Repo Rate Average) in Canada.
OIS contracts serve as a risk management tool for institutions exposed to overnight rate fluctuations. They are marked-to-market and settled daily, with the swap value recalculated based on changes in the overnight rate."
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.