The Bank of Canada met on Wednesday to set its interest rate policy. As predicted, the Bank has resumed easing the prime rate that began in June 2024 after pausing cuts since April 2025 due to worldwide economic uncertainties around trade and tariffs. Recent economic data suggest the Canadian economy is struggling in the face of these uncertainties. Among the sobering numbers from the last labor force survey was a loss of 66,000 jobs in August. That, coupled with the loss of 41,000 positions in July, means the economy has shed a net 40,000 jobs since the beginning of March, which is the steepest downturn since August 2020. Canada’s latest employment report significantly increased the likelihood of the latest interest rate cut.
While negotiations on tariffs remain ongoing, the USMCA (the old NAFTA) comes up for its first formal review – and its potential end in 2026 – unless all parties agree to extend it, which appears unlikely at the moment. Based on these economic headwinds, we expect further prime rate cuts to continue into 2026. Fixed rates also continue to fall, and our prediction is that we will see long-term fixed rates settle in the 3.50% range come early 2026. For anyone looking for a new home, refinancing, or renewing, our advice would be to explore a variable rate option with the possible strategy of converting to a fixed rate in 2026 once the rate environment stabilizes. Converting from a variable to a fixed rate is generally done at no cost and requires just a signature or two: no need to requalify. To keep it on your mental calendar, the next Bank of Canada meetings are October 29th and December 10th.
With falling interest costs and a large number of mortgages maturing in 2026, this could be a silver lining for the Canadian economy. For context, consider the following scenario: the lowest available 5-year fixed rate in 2021 (between January and March) was 1.39%. Assuming a $500,000 mortgage with a 25-year amortization, the borrower would owe about $413,000 today. If no changes were made to the mortgage in the last 5 years, and the renewal rate is 3.50%, payments would rise by about $400 per month while keeping the same remaining amortization (20 years). However, if the borrower extended the amortization back to 25 or even 30 years, the payment would remain about the same as when they started.
This is an important consideration for clients renewing soon and concerned about higher payments—there are options to help mitigate the impact.
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