As widely expected, the Bank of Canada has announced a 0.25% cut to its overnight rate in its first scheduled announcement of 2025. This marks the sixth consecutive cut, bringing the total reductions to 2.00% since the BoC began easing rates in June of last year. With this latest move, the prime rate is set to drop to 5.20%, and we can expect mortgage lenders to adjust their rates accordingly by the end of the week.

While projections suggest that the Bank of Canada will continue cutting rates throughout 2025, a new wildcard has entered the picture—U.S. President Donald Trump’s proposed tariffs. This development injects a fresh layer of uncertainty into rate forecasts, making it increasingly difficult to predict where we’re headed next.

 

Trump’s Tariff Threat: A Game-Changer for Canadian Mortgage Rates?

If history has taught us anything, it’s that Trump’s policies can be unpredictable, and their ripple effects don’t stop at the U.S. border. His proposed tariffs, set to be announced on  February 1st, could dramatically shift the Bank of Canada’s strategy.

Here’s how it could play out:

  • Scenario 1: Inflation Spike – Tariffs will drive up the cost of goods imported from the US, which would boost inflation on the affected products. This could force the BoC to reverse course and start increasing rates instead of cutting them.
  • Scenario 2: Economic Slowdown – If tariffs significantly harm the Canadian economy, the BoC may have no choice but to accelerate rate cuts to stimulate growth.

The big question for 2025: Will the Bank of Canada’s biggest challenge be inflation or economic slowdown? The answer hinges on how aggressive Trump’s tariffs are, which industries they affect, and how long they remain in place.

 

What Are the Current Rate Forecasts?

Most experts anticipate further rate cuts, but there’s a wide range of opinions:

  • RBC has the most aggressive forecast of the big six banks, predicting another 1.00% in cuts by year-end.
  • Scotiabank, on the other hand, believes the Bank of Canada will hold steady with no additional reductions in 2025.

If RBC’s forecast holds true, variable-rate mortgages could offer significant savings this year. If you’re considering one, check out my recent blog on Choosing a Variable Rate Mortgage in 2025 for insights on making the right decision.

 

What About Fixed Mortgage Rates?

I’ve previously noted that fixed rates aren’t expected to drop as quickly as the Bank of Canada’s rate cuts—and that still holds. However, with Trump in the mix, there’s even more uncertainty surrounding fixed rates. They could fall, or they could rise—it all depends on how economic conditions unfold.

Right now, bond yields—the primary driver of fixed mortgage rates—have dropped by about 12%. This suggests that some lenders may lower their fixed mortgage rates soon. However, this drop follows a sharp 13% spike earlier in the year, which many lenders haven’t yet fully adjusted for. If bond yields continue to fall, fixed mortgage rates should follow suit—but for now, it’s a waiting game.

 

My Final Thoughts

Navigating the mortgage market in 2025 is no small feat, especially with so many moving parts. While all signs currently point to lower rates, uncertainty remains high, and even the Bank of Canada itself doesn’t have a definitive roadmap.

This is where expert guidance comes in. At PMT Mortgage, our team of highly trained and talented professionals is here to help you make the best mortgage decision for your unique situation. As I emphasize in my book, Beat the Bank – How to Win the Mortgage Game in Canada, what’s right for one person may not be right for another. We’re here to tailor a strategy that works for you.

The next Bank of Canada announcement is scheduled for March 12th. Until then, stay informed, stay flexible, and, as always, reach out if you need expert advice on your mortgage strategy.

Read the Bank of Canada’s full announcement here.