Why haven’t mortgage rates come down more?

For this week’s Top Story, we’re investigating why mortgage rates haven’t come down much since the Bank of Canada rates have dropped.

With one in three Canadians paying down a mortgage, fixed and variable mortgage interest rates are never far from the thoughts of millions of Canadians, and not because they are reflecting on what a great deal they got. With the Financial Consumer Agency of Canada (FCAC) reporting that two-thirds of mortgage holders have trouble making mortgage payments, those with housing debt are more frequently wondering if interest relief is in sight.

In 2022, Bank of Canada (BoC) policy interest rates, which help inform the interest rates charged on mortgages, went from 0.25% to 4.25% by year’s end. It was great for people who had already locked in to fixed-rate mortgages for a period of a few months up to 10 years. But those with variable rate mortgages found themselves increasing their payments as a result of the rate uptick.

Despite the policy interest rate sitting at 2.25% in May 2026, mortgage rates haven’t fallen significantly. As well, some analysts expect the Canadian housing market to moderate this year, so it may feel like a sizeable dip is around the corner. But feelings don’t count for much in the mortgage market, and mortgages don’t exist in a vacuum.

Instead, the big economic picture both in Canada and abroad is influencing our relatively stable mortgage rates. Here’s how.

Bonds and tariffs: how to spot the economic signals for mortgage rates

There’s no clear signal the policy interest rate will drop. David-Alexandre Brassard, chief economist at Chartered Public Accountants (CPA) of Canada, doesn’t expect the BoC policy interest rate to decline in the near future, and certainly not “astronomically.” He says that an expected review of the Canada-United States-Mexico Agreement by July could spur change. “If we see some changes on the sectoral tariffs, this could decrease [the BoC rate] slightly, but that’s highly uncertain.”

Bonds issued by the federal government also play a role. Investors buy them and are paid interest over a set term. The government uses the funds to pay back debts and cover expenses.

“The five-year bond yield is a function of not just what’s going on today, but what the market’s expectations are over the next five years,” says Mike Moffatt, an economist and founder of the Missing Middle Initiative, an Ottawa-based research initiative devoted to tackling economic challenges faced by young middle class Canadians. Five-year bond yields—the value a bond returns over the period—are most closely linked to mortgage rates. Bonds are a low-cost, low-risk investment, while mortgages carry somewhat more risk and typically offer higher returns to lenders. To close the gap mortgage lenders frequently charge 1% to 2% spread more than the bond yield.

Moffatt says if financial markets expected a BoC rate cut, bond prices would reflect this. Global economic uncertainty and inflation concerns offer little hope that global central banks will cut interest rates soon, including in Canada.

Brassard says bond yields, which are updated daily, fluctuate depending on how risky investors deem Canadian debt to be. For instance, the war in Iran is increasing uncertainty around international trade (the goods and services we get from other countries), especially the availability of oil, and economic growth in Canada is on the downturn, in part because our population isn’t growing (2025 was the first year that’s happened since Confederation). Then there’s the whiplash from U.S. President Donald Trump’s tariff announcements, which seem to come in greater quantities than his social media posts. 

Investors are, in Brassard’s view, understandably pricing more risk into Canadian debt, “because the outlook of our growth is impaired by our main trading partner being more of a protectionist.”

No clear winners and losers when rates drop

Before you start manifesting an interest rate decline, remember there are winners and losers to any interest rate hike—savers, for example, earn more interest in savings accounts and on GICs even as borrowers pay more interest on loans and mortgages. When one gets relief, the other pays. 

“There are decent arguments on both sides to raise rates and lower rates,” Moffatt says. On one hand, youth unemployment is high, and the economy isn’t doing well, but on the other, central banks tend to increase rates when inflationary pressure is present—as it is now. This puts Canada in a stasis “where those two forces are kind of balancing each other out.”

Once that balance gets upset, say by a war ending or a recession, we should be able to predict that rates might drop, but Brassard and Moffatt say it’s not clear now. Whatever the next step, one thing’s for sure—anyone with a mortgage rate renewal looming will watch with bated breath.

Read more from this issue of The Get:

1. How much does the internet know about us?
2. Artist Christopher Rouleau opens up on Selling Canada—and the business of art
3. What is a digital footprint? Should it be part of your will?
4. How much money will I need to retire at 60?