If there’s one thing Donald Trump loves, it’s making headlines. Whether it’s a surprise announcement, a bold policy move, or a sudden change of heart, he knows how to keep the world on its toes. His latest act? Threatening a 25% tariff on goods imported from Canada and Mexico—and then signing them into action on February 1st.

Naturally, the markets reacted faster than a cat spotting a cucumber. On February 3rd, the next business day, Government of Canada bond yields plunged by 6%. The last time yields were this low was in February 2022. At the time, fixed mortgage rates were in the mid-to-high 2% range—a far cry from where they are today.

 

Will Fixed Mortgage Rates Drop Back to the 2% Range?

If bond yields were the only factor in fixed mortgage rate pricing, we could be dusting off those ultra-low rates again. But, as always, the mortgage market is more complicated than that. The 6% drop in yields didn’t last long. Just hours later, Trump cut a deal with Mexico to delay the tariffs by 30 days, and bond yields rebounded slightly, ending the day only 3% down. Then, like clockwork, he made the same offer to Canada.

Even with that partial recovery, a 3% drop in yields is nothing to sneeze at, especially since yields had already been sliding since mid-January in anticipation of the tariffs. If this downward trend continues, we might just see fixed rates starting with a “2” once again.

The reality is, mortgage rate forecasts can be about as dependable as a GPS with a mind of its own. One unexpected twist, and suddenly, the entire outlook is flipped on its head.

 

Will Trump Reinstate the Tariffs?

For now, the tariffs are on hold. Will Trump bring them back after 30 days? Maybe. But something tells me this was more about rattling cages than actual policy. Tariffs aren’t just bad for Canada—they’re bad for the U.S. too. As my friend Rob McLister at MortgageLogic.news puts it, imposing tariffs is “like trying to win a fight by punching yourself in the face.” It just doesn’t make sense.

The U.S. is already battling inflation. Slapping tariffs on Canadian goods would only make that worse, driving up prices for American consumers. Which brings us to the big question…

 

Who Really Pays for Tariffs?

A tariff is basically a tax on imported goods. When the U.S. imposes tariffs on Canadian exports, it’s actually American companies importing those goods that foot the bill. And do they just eat that cost? Of course not! They pass it on to their U.S. customers. So, in the end, it’s the American consumer paying more.

If Canada retaliates with tariffs of its own (which it always does), U.S. goods become more expensive here too. Suddenly, we’re a pricier trading partner, and that can do significant damage to our economy. 

 

How Will This Impact the Bank of Canada Rate?

The Bank of Canada is watching this circus closely. If Trump does bring the tariffs back, we could see some aggressive moves. National Bank has already suggested there could be grounds for an unscheduled rate cut—something we haven’t seen since March 2020 when two emergency 0.50% cuts were made in response to the pandemic.

BMO is now predicting that if tariffs return, the Bank of Canada might slash rates by another 1.50% this year, bringing the prime rate down to 3.70%. Previously, they only expected 0.50% in additional cuts. I’ll be sharing updated forecasts from the big six banks in an upcoming blog once they are released. 

 

Fixed Mortgage Rates Are Already Dropping

Mortgage lenders have started cutting fixed rates across the board. The lowest insured 3 and 5-year fixed rates are back below 4%. Uninsured fixed rates are sitting between 4.04% and 4.29%, depending on the situation. If bond yields keep falling, fixed rates could drop even further.

 

My Final Thoughts

Tariffs might be bad for the economy, but they’re great for mortgage rates. When people tighten their wallets, the Bank of Canada steps in to stimulate spending by cutting rates.

The real challenge? Trying to make sense of an economy that changes by the day. If the prime rate continues its downward trajectory, variable rate mortgages could be the best bet. But if you can’t stomach the uncertainty, locking in a fixed rate might be the smarter move.

As I say in my book, Beat the Bank – How to Win the Mortgage Game in Canada, the right choice isn’t always the one that saves you the most money—it’s the one that allows you to sleep soundly at night. And if you’re unsure what that is, the expert team at PMT Mortgage is here to help.

Stay tuned for more updates, because if there’s one thing we know for sure, it’s that nothing is ever set in stone—especially with Trump in the mix.