Mortgage Rate Forecast (June 2026)

by Florencio Jr Mende

Canadian borrowers were effectively denied a period of lower rates that should have extended through much of 2026. The drop in bond yields seen earlier this year has been erased, as the Iran conflict and ensuing oil shock have driven yields back to early‑2025 levels.

With the Strait of Hormuz remaining under contest, bond markets continue facing upward risks and pressure, pushing fixed mortgage rates to 4.7 per cent. However, a tentative peace agreement between the United States and Iran has unwound some of this pressure. Yields have cooled in recent weeks, underpinned both by the recent peace talks and shifting central bank sentiment, helping to quell inflation concerns.

Given the lack of pass-through so far from spiking energy prices into broader consumer prices, alongside a recovering but still weak Canadian labour market, we may not see a change in the overnight rate this year, despite current expectations of rate increases priced into financial markets. With this in mind, uninsured fixed rates may temporarily retrace to under 4.5 per cent in the short term as yields fall before rising next year as the Bank of Canada returns its overnight rate to 2.75 per cent.

Variable mortgage rates have ticked up after remaining steady across five consecutive rate holds from the Bank of Canada. Lenders have slightly reduced their discounts to protect their margins, pushing rates to 4.2 per cent, roughly 25 basis points below the prime business rate. Overall, the trajectory of variable rates depends on the Bank of Canada’s response to the double-sided risks facing the economy. Given our cautious outlook of the Bank holding throughout the year, we expect variable rates to fall back to 4.1 per cent in 2026 as lenders increase

their discounts to levels seen in the spring.

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Florencio Jr Mende

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