Forecast for Fixed and Variable Interest Rates in Canada (2025–2028)

Fixed Interest Rates

2025: Fixed mortgage rates are projected to decline moderately as bond yields stabilize. This is influenced by the Bank of Canada’s (BoC) success in bringing inflation closer to its 2% target, as outlined in its October 2024 Monetary Policy Report. By the end of 2025, 5-year fixed rates could fall to 4.0%–4.5%.

2026: As the BoC continues to lower its policy rate, fixed rates may further decrease slightly, potentially reaching 3.8%–4.2% by year-end, assuming bond yields remain stable.

2027–2028: Fixed rates are likely to stabilize or rise slightly, depending on global economic recovery and inflationary pressures. Rates could range between 4.0%–5.0% during this period.

Variable Interest Rates

2025: Variable rates are expected to decrease gradually as the BoC cuts its policy rate further. By the end of 2025, 5-year variable rates could decline to around 3.85%–4.0%, reflecting the easing monetary stance.

2026: Continued reductions in the BoC’s policy rate may lead to variable rates dropping further, potentially reaching 3.45%–3.68% by year-end.

2027–2028: Variable rates may stabilize between 2.5%–3.5%, assuming inflation remains under control and no major economic disruptions occur.

Key Factors Influencing Rate Changes

Inflation Trends:
- Inflation has returned to the BoC’s target range of 1%-3%, with projections indicating it will remain near 2% over the medium term1.

Economic Growth:
- GDP growth is forecasted at approximately 2.1% in 2025 but may slow due to structural factors like aging demographics and reduced immigration targets.

Labour Market Conditions:
- Unemployment is expected to peak at 6.8% in mid-2025 before stabilizing, reducing wage pressures and supporting lower interest rates.

Global Market Conditions:
- Canadian fixed mortgage rates are influenced by bond yields, which depend on global market conditions, including U.S. monetary policy and geopolitical stability.

Bank of Canada Policy:
- The BoC is expected to reduce its policy rate gradually through 2025 and into 2026, aiming for a neutral range of 2.25%-3.25%, barring significant economic shocks.

Housing Market Dynamics:
- Lower interest rates are anticipated to stimulate housing demand and prices, especially as many homeowners renew mortgages at higher rates over the next two years.

Government Policies and Stimulus:
- Fiscal measures such as rebates or infrastructure investments may counteract some deflationary pressures but could also reignite inflation if overly aggressive.

Summary Table of Forecasts

Year	Fixed Rates (5-Year)	Variable Rates (5-Year)	BoC Policy Rate
End of 2025	4.0%–4.5%	3.85%–4.0%	2.25%–2.75%
End of 2026	3.8%–4.2%	3.45%–3.68%	~2.25%
End of 2027	4.0%–5.0%	2.50%–3.50%	~2.00%-2.25%

This forecast assumes no significant geopolitical or economic shocks that could disrupt current trends in monetary policy or global markets.

The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. Interest rate forecasts are based on current market trends and economic conditions, which are subject to change. Readers should consult with a qualified financial advisor as well as a mortgage professional to assess their individual circumstances before making any financial decisions. The author and publisher are not responsible for any actions taken based on the content of this article.