Mortgage outlook 2025: Canadians can expect lower rates and deals next year.

With inflation at the Bank of Canada’s 2% target, analysts expect rate cuts to continue into next year. Experts say Canadians should expect lower mortgage rates and better deals in 2025.

Canadians have faced higher interest rates for a few years. The Bank of Canada raised its policy rate to combat soaring inflation. Since June, the central bank has cut its benchmark rate by 175 basis points over five decisions. This includes two jumbo 50-point cuts in October and December. The Bank’s policy rate now sits at 3.25 per cent. Economists expect the Bank of Canada to cut interest rates next year, but at a “more gradual” pace.

2025 could be the comeback year for the variable-rate mortgage.

With interest rates falling, 2025 may see renewed interest in variable-rate mortgages.

“We can expect some drop in variable rates. ‘The fixed-rate side will be more challenging,’ said Penelope Graham, a mortgage expert at Ratehub.ca, in an interview with Yahoo Finance Canada. Variable-rate mortgages adjust with the prime lending rate. The BoC’s policy rate changes affect them. Graham notes that the bond market affects fixed mortgage rates. It has seen yields remain ‘very, very sticky.’ Since Oct. 1, the benchmark 5-year bond yield has ranged from 2.74 to 3.31 percent.”

“Fixed mortgage rates haven’t changed much in the past few months. We don’t expect that to change until mid-next year. Unless something reassures the markets.”

“But with the way things are currently looking, there’s nothing on the radar that might suggest that.”

Victor Tran, a Toronto mortgage broker and Ratesdotca expert, says interest in variable rates rose in the summer after the central bank cut its rate. With variable rates above fixed rates, he says homeowners are “seeing a light at the end of the tunnel.” They will endure the short-term pain of the higher rates.

“A lot of customers are saying they are willing to accept a higher variable rate and a higher payment for now.” But give it another three or four months, we could be ahead,” Tran said in an interview with Yahoo Finance Canada.

Graham and Tran both expect variable-rate mortgages to fall below fixed rates in 2025. But fixed rates are still popular among mortgage holders. Tran expects three-year fixed terms to remain a top choice. They have surged in popularity over the last few years.

‘More bargaining power’ for 2025 renewers

Going into 2025, there are still around 40 percent of mortgages that are up for renewal. As the Bank of Canada cut rates, worries about renewal price shocks faded. But many Canadians will face financial pressure as they renew at higher rates.

The good news for those renewing their mortgage is that banks will compete for customers. This could lead to better deals, Tran says.

“Anyone up for renewal in the next year will pay a higher rate,” he noted.

“There is a bit of relief now since rates have been coming down. The removal of the stress test rate for renewals gives Canadians more options. They can now shop around and negotiate more. It will be competitive in 2025, and we may see some crazy offers.”

Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, will no longer require a stress test for borrowers with uninsured mortgages when switching lenders. That should give some borrowers more flexibility to shop around, Graham says.

“With new business and easier lender switching at renewal, we expect banks to be very competitive on rates,” Graham said.

“We expect to see some of the mortgage rate-war pricing from years past. A lender may launch a great promo. Then, smaller lenders may chip away at it, point by point, to gain an edge.”

But there is a big caveat when it comes to 2025 expectations, Graham warns. That’s economic uncertainty for next year. It’s due to President Trump’s threat to impose tariffs on Canadian imports. People worry about the impact on the Canadian economy.

“Right now, every economist wonders if these tariffs will happen. If they do, we’re looking at a very different scenario,” Graham said.

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