Have Fixed Rate Mortgages Hit their Floor?

The Bank of Canada reduced its overnight policy rate by another 50 basis points on Dec. 11, in response to slowing GDP growth and rising uncertainty around trade tariffs. This marked the second consecutive oversized interest rate cut, bringing the lending rate down to 3.25%.

Undoubtedly, this fifth straight cut is good news, but how much will it help fixed mortgage rates?

Unlike variable rate mortgages, which are tied directly to the prime lending rate and, in turn, are influenced by the overnight policy rate, rates for fixed mortgages are strongly linked to the bond market. Since bond yields typically move down well before any ‘expected’ prime rate drops, this means there hasn’t been much recent movement on the fixed rate front.

In fact, with the country’s central bank signalling at its last interest rate announcement that it will assess the need for further rate changes as we move through 2025, the bond yield actually ticked higher.

So, unless the Bank of Canada changes its tune, popular five-year, fixed rate mortgages might not fall much more and they’ll remain in the low-to-mid 4% range.