As we step into 2025, the Canadian mortgage landscape remains a topic of intense focus, especially for homeowners, first-time buyers, and those looking to refinance. With shifting global economic dynamics, decisions made by the Bank of Canada, and local market conditions, predictions about where mortgage rates will land are never easy. However, experts are keeping a close eye on current events to gauge potential trends.
The Trudeau News and Bond Yields: What’s Happening?
As of January 6, Canadian financial markets saw little movement in bond yields following news from Prime Minister Justin Trudeau. While the news barely impacted bond yields, the Canadian dollar, or loonie, gained more than 0.5 cents. This rally signals some degree of market optimism in the Canadian economy, which could translate into future adjustments in monetary policy by the Bank of Canada.
Key Insights from the Latest Predictions
CIBC reports that markets are currently expecting a “rest” in monetary policy, with rates expected to remain just below 2.75%, which is below the midpoint of the Bank of Canada’s neutral rate range. This suggests that the Bank of Canada is likely to hold off on any significant rate hikes in the near future, providing some stability to mortgage holders.
When it comes to mortgages, forward rates indicate a clear trend: Variable mortgages are still likely to outperform fixed-rate options for most borrowers. In fact, many borrowers who choose variable-rate mortgages could benefit from lower rates in 2025, at least compared to their fixed-rate counterparts.
Special Offer:
Variable Mortgage: P-1.1% (potentially as low as 3.95% for a 3-year fixed mortgage, subject to qualification and lender approval, until the offer lasts). This special rate further reinforces the attractiveness of variable options in the current market.
Bank of Canada Meeting: The January 29 Decision
The next crucial meeting of the Bank of Canada (BoC) is scheduled for January 29, 2025. The market is predicting a 70% chance that the BoC will implement a 25 basis point (bps) cut to the benchmark interest rate. However, there remains a 30% chance that the BoC will choose to hold rates steady, particularly if economic conditions show signs of stabilization. If a rate cut occurs, it could further reduce borrowing costs for mortgage holders, benefiting variable-rate mortgage borrowers the most.
Global Influences: Trump and the U.S. Federal Reserve
On the international stage, developments in the U.S. economy also play a role in shaping Canada’s financial outlook. Former U.S. President Donald Trump has recently refuted a report by the Washington Post suggesting he would reduce his tariff plans. While this decision may not directly impact Canadian mortgage rates, trade policies can affect economic stability, which in turn influences interest rates.
In addition, U.S. Federal Reserve Governor Kugler made remarks signaling that the Fed is waiting for further inflation progress before considering another rate cut. This cautious stance by the Fed provides further context for Canadian rate decisions, as a strong U.S. economy may lead to an appreciation of the Canadian dollar, potentially influencing the Bank of Canada to adjust its rates accordingly.
Looking Ahead: What Does This Mean for Mortgage Holders?
As of now, the predictions suggest that Canadian mortgage holders should anticipate relatively stable rates in 2025, with some chance of a rate cut later in the year. Variable-rate mortgages continue to be the favored option for many borrowers, offering flexibility and potential cost savings compared to fixed rates. Given the current economic indicators, we expect the Bank of Canada to be cautious in its rate adjustments, keeping the possibility of a rate cut open.
Key Takeaways for 2025:
- Variable-rate mortgages likely offer the best value for most borrowers.
- A 25bps rate cut by the Bank of Canada has a high likelihood, particularly after January 29.
- Global economic factors, especially U.S. monetary policies and trade relations, will continue to impact Canada’s mortgage landscape.
For those considering taking out a mortgage or refinancing, now may be an opportune time to act before rates potentially change later in 2025.
