Mortgage Rate Forecast (December 2025)

Bond markets in Canada and the United States are coming to terms with monetary policy that may be tighter than previously expected. Even after two rounds of rate cuts by the Bank of Canada, five-year bond yields have actually risen in recent weeks due to both forward guidance by the Bank – implying that this rate-cutting cycle is over – and messaging from the US Federal Reserve that a December rate cut is far from certain. The Bank of Canada’s current stance appears to be that with core inflation holding above its 2 per cent target, economic growth would need to underperform an already weak forecast for the policy rate to fall lower than its current level.

 

Fixed mortgage rates have remained steady through the past few months despite bond volatility in either direction.

 

Spreads between the five-year fixed rate and bond yield were roughly 40 basis points higher than historical averages but have started to converge to normal levels as bond yields tick higher. That said, there is still some room for uninsured fixed rates to fall from their current level of 4.5 per cent to a range of 4.3 to 4.4 per cent by the end of the year.

 

Variable mortgage rates have moved lower with the Bank of Canada cutting its overnight rate. The average variable rate being offered by Canadian lenders is currently at about 4.1 per cent, or only 30 basis points below the Prime Business Rate. Some lenders could get more aggressive with their discounts on variable rates, but without further Bank of Canada rate cuts, the variable rate should remain near 4.1 per cent over the next year.