Will Mortgage Rates Go Down in 2025 in Canada?

With the housing market continuing to evolve and interest rates fluctuating, many Ontarians wonder if mortgage rates will drop in 2025. Keeping an eye on where rates might go is crucial whether you're buying, renewing, or considering refinancing your mortgage. Let’s explore what could affect mortgage rates in Canada over the next year.

Factors That Influence Mortgage Rates in Canada

Mortgage rates in Canada are shaped by various economic factors, including inflation, the Bank of Canada's policy rate, and global trends. When inflation is high, for example, the Bank of Canada typically raises interest rates to control it. This often leads to higher mortgage rates, making borrowing more expensive for homeowners.

Currently, inflation is trending lower, prompting some experts to anticipate a rate cut in the near future. According to a recent report from RBC Economics, the Bank of Canada may start to reduce interest rates in the latter part of 2024, with gradual cuts expected into 2025. This shift could provide some relief for mortgage holders.

What Experts Are Saying About 2025 Rate Predictions

Several financial analysts have weighed in with predictions for mortgage rates in 2025. While it’s difficult to predict with absolute certainty, some believe that rates could trend downward, assuming inflation remains under control and economic growth stabilizes.

On the other hand, some experts urge caution, warning that persistent inflation or unexpected economic shifts could keep rates elevated. Economists at Scotiabank have suggested that while rates may ease, the drop may be gradual rather than sudden. This mixed outlook underlines the importance of staying informed and ready to act if you’re looking to lock in favourable rates.

Role of the Bank of Canada

The Bank of Canada’s decisions on interest rates play a pivotal role in shaping mortgage rates. Over the past two years, the Bank has increased rates in response to inflation, impacting everything from mortgage payments to household budgets.

Heading into 2025, the Bank’s policy rate direction will be critical. With inflation pressures easing, some market observers expect the Bank to shift gears. According to BMO Economics, if inflation remains stable, "the Bank of Canada may reduce rates by mid to late 2025." Any such move would likely bring relief to mortgage holders with variable rates or those considering new mortgages.

How Global Economic Conditions Affect Canadian Mortgage Rates

Global economic trends, especially in the United States, can indirectly influence Canadian mortgage rates. For instance, the U.S. Federal Reserve’s interest rate decisions can impact Canada due to our close economic ties. A shift in the Fed’s stance could affect how much the Bank of Canada adjusts rates. Additionally, global supply chains, trade disruptions, and geopolitical factors can contribute to mortgage rate fluctuations in Canada.

For example, the recent easing of global inflation pressures has allowed central banks to consider lowering rates, which could create an environment for the Bank of Canada to do the same in 2025.

Housing Demand and Supply’s Role in Rate Movements

Another factor influencing mortgage rates is housing demand. In Ontario, and particularly in cities like Toronto and Ottawa, the housing market has been strong. With ongoing demand and limited supply, home prices have held steady even amid high rates. This steady demand could keep rates from dropping significantly, as lenders may see less need to compete through lower rates in high-demand areas.

However, if housing supply improves or if demand cools, we could see a corresponding adjustment in mortgage rates. Additionally, any government initiatives aimed at boosting housing supply may indirectly influence the market and rates.

Fixed vs. Variable Rates in 2025

When looking at 2025, borrowers should consider how rate changes might impact both fixed and variable mortgages. If rates decline, those with variable-rate mortgages could see immediate benefits in their monthly payments, while fixed-rate holders may need to wait until renewal to enjoy lower rates. On the other hand, if you’re entering the market, a fixed-rate mortgage could protect you from any unexpected increases, while a variable rate might let you benefit if rates trend downward.

For prospective homebuyers or those looking to refinance, choosing between a fixed and variable mortgage will largely depend on your tolerance for risk and market conditions as 2025 approaches.

What This Means for Ontario Homeowners

Ultimately, understanding where mortgage rates are heading can help Ontario homeowners make smarter financial decisions. If you’re looking to renew, refinance, or enter the market, staying informed is key to securing a mortgage that fits your needs. Reviewing your financial plan and preparing for any rate scenario can help you remain resilient, whether rates drop, hold steady, or rise.

Ready to Plan for the Future?

If you’re curious about what mortgage options may be best for your situation as we head into 2025, feel free to reach out for expert advice tailored to your needs. Wilson Mortgage Broker in Niagara and St Catharines is here to help you navigate the mortgage landscape with ease. Whether you’re considering a new mortgage, refinancing, or simply exploring your options, we’re ready to provide the guidance you need. Contact us to schedule a consultation.