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) | 5.28% | 4.86% | 4.37% | 4.47% | 4.35% | 4.02% |
| 30-Days Change of Average Rates | -1 bps lower | -1 bps lower | -1 bps lower | 0 bps higher | -3 bps lower | -1 bps lower |
| Term | Lowest Rates | Average Rates (10 Lenders) | 30-Days Change of Average Rates |
|---|---|---|---|
| -Year Fixed | % | 5.28% | -1 bps lower |
| -Year Fixed | % | 4.86% | -1 bps lower |
| -Year Fixed | % | 4.37% | -1 bps lower |
| -Year Fixed | % | 4.47% | 0 bps higher |
| -Year Fixed | % | 4.35% | -3 bps lower |
| undefined-Year Variable | % | 4.02% | -1 bps lower |
The basket of 10 lenders includes: , BMO, TD, Scotiabank, RBC, National Bank, Desjardins, nesto, Tangerine, First National.
How Does the Market Think About Future Rates?
Forecast of Lowest Mortgage Interest Rates as of February 14, 2026
| Date | BoC Rate | Prime Rate | 5-Year Variable | 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 5-Year Fixed |
|---|---|---|---|---|---|---|---|
| 2026-02-13 | 2.25% | 4.45% | 3.34% | 4.69% | 4.29% | 3.54% | 3.69% |
| 2026-06-30 | 2.25% | 4.45% | 3.35% | 4.67% | 4.37% | 3.71% | 3.82% |
| 2026-12-31 | 2.25% | 4.45% | 3.35% | 4.84% | 4.51% | 3.82% | 3.92% |
| 2027-06-30 | 2.5% | 4.7% | 3.6% | 5% | 4.64% | 3.92% | 4.01% |
| 2027-12-30 | 2.5% | 4.7% | 3.6% | 5.11% | 4.73% | 4% | 4.09% |
| 2028-06-30 | 2.75% | 4.95% | 3.85% | 5.2% | 4.79% | 4.07% | 4.17% |
| 2028-12-30 | 2.75% | 4.95% | 3.85% | 5.26% | 4.85% | 4.14% | 4.24% |
| 2029-06-30 | 2.75% | 4.95% | 3.85% | 5.31% | 4.91% | 4.22% | 4.31% |
| 2029-12-31 | 3% | 5.2% | 4.1% | 5.36% | 4.99% | 4.29% | 4.38% |
| 2030-06-30 | 3% | 5.2% | 4.1% | 5.44% | 5.08% | 4.38% | 4.45% |
| 2030-12-30 | 3% | 5.2% | 4.1% | 5.55% | 5.17% | 4.46% | 4.52% |
| This table is populated based on the forward CORRA (Canadian Overnight Repo Rate Average) as reported by Chatham Financial on February 13, 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. | |||||||
Changes in the Bank of Canada (BoC) policy rate as implied by the forward contracts on Canadian Overnight Repo Rate Average (CORRA) as of February 13, 2026.
| Fixed Announce-ment Date | Likelihood of BoC policy rate at | is | Likelihood of BoC policy rate at | is |
|---|---|---|---|---|
| 2026-03-18 | 2% | 10% | 2.25% | 90% |
| 2026-04-29 | 2% | 23% | 2.25% | 77% |
| 2026-06-10 | 2% | 31% | 2.25% | 69% |
| 2026-07-15 | 2% | 36% | 2.25% | 64% |
| 2026-09-02 | 2% | 37% | 2.25% | 63% |
| 2026-10-28 | 2% | 32% | 2.25% | 68% |
| 2026-12-09 | 2% | 23% | 2.25% | 77% |
| 2027-01-27* | 2% | 4% | 2.25% | 96% |
Tariffs and Their Impact on Canadian Interest Rates (Updated January 2026)
1. Canada–US Trade Integration and Structural Exposure
Since the implementation of NAFTA in 1994, Canada's economy has become deeply integrated into North American production networks, with the United States as its dominant trade partner. Over time, Canada increasingly specialized in capital-intensive and resource-linked sectors—energy, mining, forestry, and advanced manufacturing—while lower-value manufacturing gradually declined.
This specialization is highly regional:
- Western Canada became increasingly dependent on energy and other natural resource exports.
- Ontario retained advanced manufacturing—particularly autos and machinery—but lost much of its traditional manufacturing base.
- Quebec strengthened aerospace, transportation equipment, and high-tech industries.
Crucially, many of these industries operate within cross-border value chains, where intermediate goods cross the Canada–US border multiple times before final assembly. As a result, broad US tariffs do not simply reduce exports; they disrupt investment decisions, supply chains, and productivity. This structural exposure makes Canada particularly vulnerable to sustained or unpredictable US trade restrictions.
2. Evolution of US Tariffs on Canada in 2025
US trade policy toward Canada in 2025 shifted from broad punitive measures to a more differentiated regime, with headline exemptions introduced almost simultaneously with the rollout of key sectoral tariffs. While this approach reduced the appearance of blanket protectionism, it entrenched uncertainty for trade-exposed industries.
Key developments:
- March 4 – The US imposed a 25% tariff on most non-energy Canadian goods under the International Emergency Economic Powers Act (IEEPA), while energy and critical minerals faced a 10% tariff. Canada simultaneously imposed 25% retaliatory tariffs on approximately C$30 billion of US goods.
- March 7 – A CUSMA-compliance exemption was announced for many goods subject to the IEEPA tariffs, signalling a shift away from blanket measures. However, the exemption framework left open the door to subsequent sector-specific tariffs.
- March 12–13 – The US imposed 25% global steel and aluminum tariffs under Section 232, including on Canada. Canada responded with equivalent retaliatory tariffs.
- April 3 – A 25% US auto tariff came into effect under Section 232, applying fully to Canadian vehicles and parts regardless of CUSMA compliance.
- August 1 – IEEPA tariffs on non-CUSMA Canadian goods rose from 25% to 35%, while energy tariffs remained unchanged.
- October 25 – The US announced a further 10% tariff increase on a broad set of Canadian goods linked to political retaliation against Ontario's anti-tariff advocacy. No firm implementation date has been set.
Several announced tariff escalations—particularly later in the year—remained without clear timelines. While this reduced their immediate price impact, it materially increased policy uncertainty, which proved sufficient to influence investment and hiring behaviour.
3. Tariffs, Inflation, and the Bank of Canada's Policy Dilemma
Tariffs affect interest rates through competing inflationary and disinflationary forces, placing the Bank of Canada (BoC) in a difficult policy position.
Inflationary Channels (Upward Pressure)
Tariffs raise input and consumer prices through several cost-push mechanisms:
- Canadian retaliatory tariffs on US goods
- Higher US production costs passed through via integrated supply chains
- A weaker Canadian dollar, driven by trade uncertainty and reduced capital inflows, which amplifies import price inflation
Notably, headline inflation has remained above the BoC's 2% target despite the downward mechanical effect from the removal of the consumer carbon tax. This indicates that underlying cost pressures—including tariff-related effects, currency depreciation, and supply-chain frictions—continue to offset disinflationary forces.
Disinflationary Channels (Downward Pressure)
At the same time, tariffs suppress demand by:
- Reducing exports and trade-related income
- Delaying business investment and hiring
- Weakening household spending amid job insecurity
Structural Constraint on Monetary Policy
Unlike a typical cyclical slowdown, the 2025 trade shock is causing structural damage. Prolonged investment deferrals reduce productive capacity and lower potential output. As a result, monetary easing can cushion near-term weakness but cannot fully repair lost supply-side capacity without risking future inflation.
4. Economic Outlook and Interest-Rate Implications (2026–2029)
Precious Metals Exports as a Temporary Offset
In recent months, stronger exports of precious metals—particularly gold—have partially offset the drag from weaker manufacturing and trade-sensitive exports. Elevated global precious metal prices, driven by geopolitical risk, central-bank demand, and global monetary uncertainty, have boosted nominal export values and supported near-term GDP outcomes.
However, precious metals exports are capital-intensive, generate limited domestic spillovers, and do not meaningfully substitute for lost manufacturing investment or supply-chain integration. While they have helped stabilize headline GDP growth, they do not reverse the longer-term damage to Canada's productive capacity caused by trade disruption.
For monetary policy, this complicates interpretation: stronger headline GDP supported by commodity exports masks underlying weakness in investment and trade-exposed sectors, reinforcing the BoC's cautious, data-dependent approach.
📉 Slower Growth on a Lower Potential Path (2026–2027)
Consensus forecasts from major Canadian banks and the Bank of Canada point to real GDP growth of roughly 1.5%–1.9% through 2026–2027, well below pre-2025 expectations. While an outright recession is not the base case, growth remains insufficient to restore business confidence or reverse the accumulated damage to investment.
The current environment is expected to produce:
- A permanent reduction in the level of GDP relative to a no-tariff scenario
- Continued regional stress in manufacturing-heavy provinces
- Persistent core inflation pressures despite subdued demand
Interest-rate implication: The BoC is likely to maintain a lower-for-longer policy stance, but with limited scope for aggressive rate cuts due to ongoing cost pressures.
🤝 The 2026 CUSMA Review and Prolonged Uncertainty
The mandatory six-year CUSMA (USMCA) review in 2026 represents a major inflection point. A straightforward renewal is unlikely; negotiations are expected to be contentious, with potential flashpoints including auto rules of origin, EV supply chains, dairy access, and government procurement.
Even if an agreement is ultimately reached, prolonged negotiations are likely to extend trade uncertainty, further weighing on investment decisions.
Interest-rate implication: Persistent uncertainty raises Canada's risk premium, placing upward pressure on longer-term yields even as short-term policy rates remain constrained.
🌐 Gradual Diversification and Partial De-Risking
In response to heightened US volatility, Canada is expected to pursue:
- Gradual supply-chain diversification toward Europe and Asia
- Increased domestic production in strategic sectors, often supported by fiscal incentives
- Expanded use of trade-defence measures to counter dumping and protect domestic industries
While these steps improve resilience, they come at the cost of lower efficiency and higher prices, reinforcing a lower neutral-rate environment.
⚖️ Legal and Political Wildcards
Legal challenges to the use of IEEPA for tariff enforcement may alter the form of future trade measures, but are unlikely to eliminate tariff pressure entirely. Even adverse rulings would likely shift enforcement to alternative trade statutes, prolonging uncertainty.
5. Bottom Line for Canadian Interest Rates
The 2025 tariff shock represents a structural turning point, not a temporary trade dispute.
- Canada's neutral interest rate is likely lower than pre-2025 estimates due to weaker potential growth.
- At 2.25%, the policy rate is neither accommodative nor historically low. With inflation risks binding and potential output impaired, the Bank of Canada is more constrained than in past slowdowns.
- Long-term yields may remain volatile, reflecting elevated risk premiums and persistent inflation uncertainty.
In short: tariffs have restrained growth more than they have fueled inflation, but the resulting structural damage limits how far interest rates can fall without creating new risks.
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.
Major Canadian Banks' Expectation for Interest Rates
Royal Bank of Canada (RBC)
RBC Economics expects the overnight policy rate to stay at 2.25% in 2026 and rise to 3.25% by the end of 2027.
Toronto-Dominion Bank (TD)
TD Economics expects the policy rate to stay at 2.25% through the end of 2027.
Bank of Nova Scotia (Scotiabank)
Scotiabank Economics expects the policy rate to rise by 0.5% during the second half of 2026 and by another quarter of a percent early in 2027.
Bank of Montreal (BMO)
BMO Capital Markets expects the overnight policy rate to be at 2.25% throughout 2026, while rising and averaging 2.4% in 2027.
Canadian Imperial Bank of Commerce (CIBC)
CIBC Capital Markets expects the overnight policy rate to stay at 2.25% over the course of 2026 while rising to 2.75% in 2027.
National Bank of Canada (NBC)
NBC Capital Markets expects the overnight policy rate to increase by 0.5% in the fourth quarter of 2026 and end 2027 at 2.75%.
Bank of Canada Rate Forecast for 2026: Stability in policy rate with a high degree of economic uncertainty
As of January 2026, headline inflation is fluctuating between 2.2% and 2.4%, above the Bank of Canada's (BoC) 2% target, while the bank's preferred measures of core inflation are ranging from 2.5% to 2.8%. 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 3.7% to 6%. So if you are shopping for a mortgage, 4.2% 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 $2,790, initially including $1,820 in interest costs.
The median after-tax income for a Canadian family is $74.2K per year (2023 stat), around $6,180 per month. It is easy to see that mortgage expenses are the most significant expense for a Canadian family (45% 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 treat lending in the overnight market—primarily via CORRA repos—and purchasing T-bills as near-risk-free alternatives. When managing liquidity, they favour the higher yield. The expectations hypothesis posits that T-bill yields reflect the geometric average of expected overnight rates (spot CORRA) over the bill's term.
This dynamic allows analysts to infer market-implied BoC policy rate expectations from money market yields. Among available rates, CORRA forward curves provide one of the most direct signals due to their tight linkage to overnight funding costs.
CORRA Overview
The Canadian Overnight Repo Rate Average (CORRA) benchmarks the cost of overnight general collateral repo transactions secured by Government of Canada treasury bills and bonds. It anchors BoC monetary policy transmission as Canada's primary risk-free overnight rate.
Key features:
- Purpose: Gauges overnight funding market conditions; serves as the reference rate for loans, derivatives, and risk management.
- Calculation: Volume-weighted trimmed mean of transaction rates, excluding top/bottom quartiles to mitigate outliers.
- Role: Primary indicator of short-term borrowing costs and policy expectations; underpins overnight index swaps (OIS).
- Administration: Bank of Canada supervises via its Benchmark Administration; daily publication ensures transparency.
Extracting Expectations
CORRA forward rates (e.g., 1-month, 3-month) reveal implied policy path shifts. For instance, a rising 3-month CORRA forward vs. spot CORRA signals markets pricing higher future BoC rates. This approach outperforms T-bill yields alone, as CORRA embeds repo market liquidity premia more precisely.
Macroeconomic Factors Affecting Interest Rates?
Over decades, technological advancements and globalization have acted as powerful deflationary forces, driving a long-term decline in interest rates that encouraged widespread debt accumulation across economies. While rates frequently surpassed 2023 highs between 1968 and 2001, Western economies like Canada's have undergone profound structural shifts, leaving debt levels far higher than in the 20th century and limiting the economy's tolerance for sustained high rates in the 2020s.
General Government Gross Debt
Total Credit Liabilities of Households
Since 1990, general government debt, which includes Federal, provincial and local government debt, has expanded 5.7-fold, while household debt has surged 9-fold, fueled by falling rates, rising incomes, and relatively stable debt service ratios until recently. Household income growth outpaced population expansion dramatically over this period—population up 51%, nominal incomes up 347%, with total inflation at 115%—yielding a real per capita gain of 38% after adjustments.
Household Disposable Income
Debt service pressures have nonetheless intensified for Canadian households. The total ratio climbed from ~12% in the early 1990s to ~15% recently, with the peak of 15.17% in Q1 2023, the second and third highest values of 15.14% and 15.13% relate to Q2, 2023 and Q4 2023. Mortgages represent ~75% of household debt yet generate service costs comparable to non-mortgage debt, given the latter's higher rates on credit cards and auto loans; this balance highlights growing vulnerability to rate hikes.
Debt Service Ratio for Canadian Households
Mortgages represent ~75% of household debt yet generate service costs comparable to non-mortgage debt, given the latter's higher rates on credit cards and auto loans; this balance highlights growing vulnerability to rate hikes.
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.