As we wrap up 2025 and look into early 2026, mortgage interest rates are one of the biggest topics on homebuyers’ and homeowners’ minds. With interest rates shifting throughout the year and economic indicators evolving, understanding the latest trends can help you make better decisions about buying, renewing, or refinancing your mortgage.

🔍 Current Interest Rate Environment

The Bank of Canada (BoC) has held its policy interest rate at 2.25% as of December 2025. This followed multiple rate cuts earlier in the year aimed at supporting economic growth and inflation stability.

These policy decisions directly affect variable mortgage rates — which tend to follow the bank’s prime lending rate — and indirectly influence fixed mortgage rates through financial markets.

Variable rates are currently competitive, with many lenders offering them around ~4.1–4.5% depending on your situation and lender discounts.

Fixed rates (3- and 5-year terms) remain slightly higher, with many competitive fixed offers around 3.7–3.9% while average posted conventional rates can be above 5%.

📊 What The Trends Mean for You
🏡 1. Borrowing Costs Are Still Elevated

Even though rates have eased from their mid-2024 highs, mortgage rates — especially in the U.S. — remain above the long-term historical averages. Clients should know that:

Higher rates mean higher monthly payments.

You may qualify for a smaller loan amount than when rates were lower.

🔄 Fixed vs. Variable Mortgage Rates

Understanding the difference between fixed and variable rate mortgages is essential to making the right decision:

🟢 Fixed Rate Mortgages

Your interest rate stays the same for the entire term of your mortgage.

This offers predictability and security — great for tight budgets.

Because lenders price in future uncertainty, fixed rates are typically higher than variable rates at the same point in time.

📌 Example:
A 5-year fixed rate at 3.9% means your monthly payment won’t change, regardless of what happens to the BoC rate or markets.

🔵 Variable Rate Mortgages

Your rate can fluctuate based on the lender’s prime rate, which is influenced by the Bank of Canada’s policy rate.

The initial rate is often lower than a fixed rate, which can save you money when rates fall or remain stable.

But if rates rise, your mortgage payments could increase.

📌 Example:
A variable rate starting at 4.3% might drop if the BoC eases further — lowering your payments. But if inflation returns and rates rise, your payments could go up too.

💡 Interest Rates and Renewals

Many Canadian homeowners entering a renewal in 2025–2026 may face a higher rate than their previous term — especially if they locked in during the ultra-low rate era. Understanding market movement and lining up options well before renewal can save significant interest costs over the long term.

🧠 Smart Decisions in the Current Market

Here are practical tips you can follow-

✔️ Shop Around for Rates
Even small differences (0.3–0.5%) in interest rates can make hundreds of dollars of difference per month.

✔️ Consider Term Length Based on Plans
Shorter terms might offer more flexibility if rates fall soon. Longer terms lock in today’s rates against future increases.

✔️ Evaluate Your Risk Tolerance
If stability matters more than potential savings, a fixed rate might be best. If saving on monthly costs today is key and you’re comfortable with some fluctuation, variable could work.

🧾 Where Rates May Head in 2026

Economists and mortgage market watchers currently expect moderate movement:

Rates could stay relatively stable or slowly drift lower if inflation continues to cool.

Canadian policy rates may hold steady until the economy directs otherwise.

📌 Bottom Line for Homebuyers & Homeowners

➡️ Mortgage rates have eased from the highs of 2024–2025, but they remain above historic lows.
➡️ Fixed vs. variable decisions matter more than ever in this environment.
➡️ Planning, preparation, and comparison shopping can save you thousands over the life of your mortgage.