Happy New Year!

It’s hard to believe we’re stepping into 2025 already. Time sure flies!

2024 was an exciting year for the mortgage market, as many Canadians eagerly awaited rate cuts from the Bank of Canada—and they got them. At the start of the year, forecasts ranged from a modest 1.00% cut to a more aggressive 1.75%. The most optimistic predictions turned out to be correct, with a total rate reduction of 1.75%. Kudos to National Bank for nailing that forecast!

But now that 2024 is in the rearview mirror, what lies ahead for mortgage rates in 2025?

 

A Mixed Bag of Predictions

Just like last year, expert opinions vary, with Scotiabank being the least optimistic, predicting just a single rate cut of 0.25% by the end of Q1, with no further reductions for the remainder of the year. RBC is the most optimistic route, forecasting a total of 1.25% in cuts by the end of Q3.

 

Current Forecasts from the Big Six Banks

BANK 2025
Q1 Q2 Q3 Q4 TOTAL
CIBC -0.50% -0.50% N/C N/C -1.00%
RBC -0.50% -0.50% -0.25% N/C -1.25% 
Scotia  -0.25% N/C N/C N/C -0.25%
TD -0.25% -0.25% -0.25% -0.25% -1.00%
BMO -0.25% -0.25% -0.25% N/C -0.75%
National Bank -0.50% -0.25% -0.25% N/C -1.00% 

With such diverse forecasts, borrowers will need to stay vigilant and adaptable.

 

Fixed Mortgage Rates

While the Bank of Canada could reduce its rate by as much as 1.25% in 2025 according to the current forecasts, fixed mortgage rates aren’t guaranteed to follow suit. In fact, the last quarter of 2024 demonstrated this disconnect clearly:

  • The Bank of Canada cut rates by 1.00% in Q4 2024.
  • Yet fixed mortgage rates rose by approximately 0.30% during the same period.

This highlights an essential truth: fixed mortgage rates don’t move in lockstep with Bank of Canada decisions. In some cases, they even trend in the opposite direction.

Looking ahead, while fixed rates might decline slightly from current levels, there’s no guarantee they will. They could even climb higher, regardless of any further cuts by the Bank of Canada.

 

Variable Rate Mortgages

Throughout much of 2024, variable rate mortgages carried a hefty rate premium, often greater than 1% compared to fixed-rate options. However, as rates fell and fixed rates edged upward, the gap has narrowed significantly:

  • Variable rates now range 0.15% to 0.40% higher than fixed rates in most situations.
  • Discounts off the prime rate for variable mortgages range from 1.10% to 0.85% (currently 4.35% to 4.60%) on owner occupied properties. 

If the Bank of Canada cuts rates by another 1.00% in 2025—a scenario most big banks predict—variable rates would drop below fixed rates again, returning to a more typical market structure.

If the prime rate falls as expected, then variable rate mortgages could result in the the greatest savings over the next five years. But this doesn’t mean that everyone should be choosing this route. Before committing, consider the five key factors I outline in my blog: The Ultimate Guide to Choosing Fixed vs. Variable Mortgages.

 

My Final Thoughts

2024 brought significant rate relief, but what about 2025? Here’s the bottom line:

  • Further rate cuts from the Bank of Canada are likely, but the extent remains uncertain.
  • Fixed mortgage rates may decrease, but don’t bank on dramatic drops—and there’s always the chance they could rise.
  • Variable rate mortgages could shine in 2025, especially if rate cuts materialize, but they’re not a one-size-fits-all solution.

And let’s not forget the wildcard: politics.

With Donald Trump returning as U.S. President, financial markets could see heightened unpredictability. Trump’s actions often ripple across borders, influencing rates and economic sentiment here in Canada. The market is already volatile, and his presidency could turn uncertainty into chaos.

In the world of mortgages and finance, one thing is certain: anything can happen. Stay informed, and let’s see where 2025 takes us.