As of mid-May 2025, Canada’s mortgage landscape is at a crossroads, influenced by recent monetary policy decisions, global trade tensions, and evolving economic indicators.
Bank of Canada Holds Steady Amid Trade Concerns
On April 16, 2025, the Bank of Canada (BoC) maintained its overnight rate at 2.75%, following two consecutive 25 basis point cuts earlier in the year. This decision reflects the central bank’s cautious approach amid economic uncertainties, particularly those arising from international trade dynamics.
The BoC’s policy rate directly influences the prime rates set by Canadian banks, which currently stand at approximately 4.95%. Consequently, variable mortgage rates have remained stable, with five-year variable rates hovering around 3.95%.
Impact on Mortgage Holders
A significant portion of Canadian mortgages—about 60%—are set to renew in 2025 and 2026. Many of these were originated during the pandemic at historically low interest rates. While current rates are higher, the BoC’s recent rate cuts have mitigated potential payment shocks.
Moreover, due to stringent stress testing implemented during loan origination, most borrowers are expected to manage the increased payments without undue financial strain.
Economic Outlook and Trade Tensions
The Canadian economy faces headwinds from ongoing trade disputes, notably with the United States. The BoC’s Financial Stability Report highlights that prolonged tariffs could lead to increased credit losses for banks and heightened financial strain for households and businesses.
Two potential scenarios emerge:
- Moderate Scenario: Tariffs are gradually resolved, leading to temporary economic slowdown but eventual recovery.
- Severe Scenario: Persistent trade conflicts trigger a recession, with GDP contracting and inflation rising above target levels.
The BoC’s future rate decisions will likely hinge on the unfolding of these scenarios, balancing the need to support economic growth while managing inflationary pressures.
Mortgage Rate Forecast
Looking ahead, forecasts suggest a gradual decline in mortgage rates. The five-year fixed mortgage rate, currently around 3.84%, is projected to decrease to approximately 3.8% by the end of 2025. This trend offers a silver lining for prospective homebuyers and those approaching mortgage renewal.
Market Update: TSX Surges in Early May 2025
In the first half of May 2025, the Canadian stock market experienced notable gains, with the S&P/TSX Composite Index reaching a near three-month high. On May 12, the index rose by 174.44 points, or 0.7%, closing at 25,532.18, driven by eased global trade tensions following a U.S.-China agreement to reduce tariffs. This development boosted hopes that a full-scale trade war could be averted.
The technology sector led the gains, soaring 5.5%, with Shopify Inc. rising 14.1%. Energy stocks climbed 3% on a 1.5% increase in oil prices to $61.95 per barrel. Consumer discretionary shares also rose 2.4%, bolstered by retailer Aritzia Inc. and auto parts maker Magna International Inc. However, the materials sector declined by 4.9% as investor interest in gold waned. Pan American Silver Corp dropped 15.9% after announcing plans to acquire MAG Silver Corp, whose shares rose 5.5%. Hudbay Minerals Inc. saw a near 9% rise after exceeding first-quarter earnings expectations.
On May 13, the S&P/TSX Composite Index continued its upward trend, closing at 25,616.86, up 84.68 points. The energy sector posted an almost 2% gain, supported by a rise in oil prices. In contrast, U.S. markets showed mixed results, with the Dow Jones Industrial Average down 269.67 points, while the S&P 500 and Nasdaq Composite saw gains.
These movements reflect investor optimism fueled by easing trade tensions and positive economic indicators, contributing to a bullish outlook for the Canadian stock market.
Conclusion
Canada’s mortgage interest rate environment in 2025 is characterized by cautious optimism. While challenges persist, particularly from external trade tensions, the BoC’s measured approach aims to navigate these complexities. For mortgage holders and prospective buyers, staying informed and consulting with financial advisors will be key to making prudent decisions in this evolving landscape.
Marc has been involved in the Stock Market Media Industry for the last +5 years. After obtaining a college degree in engineering in France, he moved to Canada, where he created Money,eh?, a personal finance website.
