The prospect of lower mortgage rates always brings excitement, especially as the Bank of Canada has already reduced its rate by 1.25% this year. With additional cuts projected into 2025, the landscape appears favorable—yet not without complexity.

Interestingly, fixed mortgage rates have recently moved in the opposite direction, rising by roughly 0.30% over the past few weeks. 

What does this divergence mean for borrowers over the next two years?  Let’s break it down. 

 

Current Forecasts from the Big Six Banks

BANK 2024 2025
Q4 Q1 Q2 Q3 Q4 TOTAL
CIBC -0.50% -0.50% -0.50% N/C N/C -1.50%
RBC -0.50% -0.50% -0.50% -0.25% N/C -1.75% 
Scotia  -0.25% -0.25% -0.25% N/C N/C -0.75%
TD -0.25% -0.50% -0.25% -0.25% -0.25% -1.50%
BMO -0.25% -0.50% -0.25% -0.25% -0.25% -1.50%
National Bank -0.50% -0.50% -0.50% -0.25% N/C -1.75% 

 

The Bank of Canada’s final rate announcement for 2024 is set for December 11th, and predictions are split. Half the banks are expecting a 0.50% cut while the other half anticipate a 0.25% cut.  Divided right down the middle.  

We’ll find out on December 11th. 

Five of the six major banks foresee 1.50% to 1.75% in rate cuts by the end of 2025. Scotiabank, being the outlier, may adjust its stance with an updated forecast soon given that their current one is from October 18th. 

 

2026 Predictions: A Mixed Bag

Predicting rates this far in advance is a tough game, almost like trying to predict the weather a month away. They can try, but the odds of it being correct are slim. They aren’t even sure on what the Bank of Canada is going to do next week, let alone over a year from now. 

Here’s the current projections for 2026: 

  • CIBC & TD: No rate movement.
  • BMO: No movement until Q4 when they are forecasting a 0.50% rate hike. 
  • National Bank: A 0.25% hike in Q2 followed by another in Q3. 
  • RBC and Scotiabank: No projections released yet. 

 

These projections remind us of a fundamental truth in finance: rates can change unpredictably.

 

Fixed Mortgage Rate Increases

Everyone is focused on dropping rates. Yes, the Bank of Canada is expected the cut their rate aggressively, so naturally people are focused on rates dropping. I hear from clients daily that they are not planning on locking in until as late as January, as they are waiting for rates to fall further. 

Despite the recent cuts from the Bank of Canada and what’s currently being forecasted, fixed mortgage rates have increased by roughly 0.30% in the past few weeks. Many who had been waiting for rates to drop may now have to accept a higher fixed rate.  

The only way to guarantee that you’ll get the lowest rate is by starting the mortgage approval process and getting a rate locked in. If the rate increases, then you’re covered. If the rate drops, then you’re still eligible for the lower rate. You can have the best of both worlds, so why shoot yourself in the foot by waiting? 

As I continually say, fixed mortgage rates do not move in tandem with the Bank of Canada rate, and they can even move in opposite directions at times. 

 

The Spread Between Fixed and Variable Rates

As I explain in my blog titled The Ultimate Guide to Choosing Fixed vs. Variable, I cover five things to consider before making the choice. The spread is one of them. Historically, variable rates start lower than fixed, offering borrowers an initial cushion. However, in the past year or so, variable rates have been unusually higher—at times by as much as 1.25%. 

But now the spread is starting to narrow, with variable rates about 0.75% to 0.85% higher than fixed rates. 

Variable rate mortgages will soon become lower than their fixed rate alternatives once again, which we can expect to happen in 2025. 

It’s possible that we may not see fixed rates fall as much as what many were expecting. I’ve said on multiple occasions that we would be doing well if they fell back into the mid-3% range. Now, it’s looking like we’ll be lucky if we hit the high 3% range. It’s also possible that fixed mortgages rates could climb higher over the next year or two. 

Time will tell of course. 

Meanwhile, forecasts suggest the Bank of Canada could reduce its rate by up to 1.75% by Q3 2025, potentially bringing the prime rate to 4.20%. The lowest variable rate mortgages currently range from prime -1.10% to prime -0.70% (4.85% to 5.25%), depending on your situation. If the forecasts are correct, then this would bring them down to 3.10% to 3.50%. As fixed rates are not expected to fall much further, this would return variable rates to a lower starting point as we would typically see in most markets. 

 

Final Thoughts 

While projections provide valuable insights, they remain educated guesses. Rates are influenced by a myriad of factors, many of which are unpredictable. The best approach? Prepare for both opportunities and uncertainties. Start the approval process early to ensure you’re protected against potentially rising fixed rates, or possible reductions in prime rate discounts if you’re interested in a variable rate. 

Mortgage rates are a moving target—but with careful planning, you can stay ahead of the game. 

As I say in my book, there is no one-size-fits-all mortgage advice. What’s right for your friends and family, may not be right for you. Everyone is a bit different. That’s where we come in. Contact us today and we would be happy to guide you through the process and help you to choose the best option tailored to your unique needs.