Bond yields have been drifting lower, and that’s creating early signs of downward pressure on fixed mortgage rates. Even though most fixed terms are still hovering near 4-4.5%, economists point out that the underlying data tells a more nuanced story.
Recent jobs numbers looked strong at first glance, but markets weren’t convinced; bond yields actually fell after the report, suggesting investors see softer momentum beneath the surface. GDP headlines have also been misleadingly positive due to a sharp drop in imports, a sign of slowing economic activity rather than real growth. As markets reassess Canada’s true economic footing, yields have softened, and that typically leads to lower fixed mortgage rates.
Bank of Canada Outlook: Cuts More Likely Than Hikes
Industry experts such as David Larock and Ben Rabidoux continue to argue that the Bank of Canada may need to move its policy rate into a more stimulative range. At least one or two additional cuts may be required before the policy rate is considered supportive of growth. While markets currently price only a modest chance of a near‑term cut, analysts believe expectations are too conservative. Even without an immediate move, a shift in market sentiment alone could push fixed rates lower.
Looking ahead, the Bank of Canada is widely expected to hold steady at its next announcement, with future decisions hinging on labour data, GDP performance, U.S. inflation trends, and ongoing trade negotiations
External Forces Shaping 2026 Rate Direction
Several broader factors could influence where rates go next:
- CUSMA renegotiation: Any instability in North American trade could weaken Canada’s economic outlook and increase the likelihood of rate cuts.
- U.S. fiscal pressures: High deficits and government spending in the U.S. can push yields upward, but slowing economic data is pulling them down.
- Labour market revisions: If late‑2025 job strength is revised downward, markets may accelerate expectations for easing.
At the same time, major Canadian banks expect 2026 to be a year of relative stability, with RBC, TD, BMO, and Scotiabank forecasting steady rates with the possibility of modest additional cuts. Fixed mortgage rates are projected to fall into the 3.69%–4.29% range, while variable rates may see slight savings if the Bank of Canada trims its policy rate further.
What This Means for Borrowers
With so much uncertainty in the rate environment, strategy matters more than prediction. Three‑year fixed rates continue to stand out because they’re currently priced very close to five‑year terms; an unusual spread that gives borrowers the chance to secure a shorter commitment without paying a premium.
At the same time, a five‑year fixed rate offers the appeal of longer‑term stability, protecting borrowers from volatility and eliminating the need to renegotiate in the near future. Variable rates may begin to fall later in the year, but the timing remains unclear. Ultimately, choosing between a shorter fixed term, a longer fixed term, or a variable rate comes down to personal comfort: whether someone prioritizes minimizing risk through stability or maximizing potential savings through flexibility.
Additional Insights Shaping the Market
- Inflation is cooling faster than expected, bringing Canada closer to the Bank’s 2% target and reducing pressure to keep rates elevated. Click here to read the most recent inflation report.
- Housing activity remains soft, a pattern that historically aligns with periods of rate stability or easing.
- Renewals are driving demand for expert advice, as many Canadians face higher payments than their previous term and need help structuring mortgages that balance affordability and flexibility.
The 2026 Big Picture
Most economists expect 0–2 additional rate cuts in 2026, though some analysts warn that if the economy strengthens unexpectedly, upward pressure could return. For now, the consensus is stability with a slight downward bias – good news for borrowers planning purchases, renewals, or refinances in the year ahead.
As the rate landscape continues to shift, the most important thing borrowers can do is make decisions that align with their comfort level, financial goals, and tolerance for risk. Whether you’re weighing the stability of a five‑year term, the flexibility of a shorter fixed option, or the potential long‑term savings of a variable rate, having the right guidance makes all the difference. If you’re planning a purchase, renewal, or refinance this year, now is the perfect time to review your options and build a strategy that puts you in the strongest position possible. Reach out anytime, I’m here to walk through the numbers, compare scenarios, and help you choose the mortgage that truly supports your next steps.
Some additional reading:
Mortgage rate outlook: Why experts say the next move could be lower
