Variable rates are holding steady, but fixed mortgage rates are heading higher following this week’s Bank of Canada decision.
After trending downward for most of November, Canadian mortgage lenders are raising fixed mortgage rates in response to stronger-than-expected economic data, and experts say higher costs are likely to persist.
While interest rates for high-rate borrowers were as low as 3.69% just a few weeks ago, five-year fixed rates are now mostly back above 4% as bond yields surged amid unexpectedly strong employment and GDP data.
Rising foreign bond markets, such as those in the United States, the United Kingdom, the Eurozone and Japan, have also driven up Canadian bond yields and driven up fixed mortgage prices.
“On November 27, the 5-year bond yield was 2.70% and recently rose to 3.10%, a gain of 40 basis points in 14 days,” explained Ron Butler of Butler Mortgages. “Now we’re seeing most fixed rates rise from below 4 to over 4 [per cent]”.
While fixed rates are currently rising, Butler expects the Bank of Canada to keep its policy rate – which drives variable mortgages – unchanged in January and March before starting to lower it later next year. “The reason is that Canada’s economy continues to deteriorate,” he believes.
Is the economy really as strong as it seems?
Strong economic headlines — namely that Canada added 53,600 jobs in November and GDP grew at an annualized rate of 2.6% in the third quarter — may not tell the full story, even if they are moving the market.
“The reason for the strong GDP growth is the result of large swings in the imports to exports ratio,” explained David Larock of Integrated Mortgage Planners. “Imports are down significantly and exports are essentially flat, and because of this our net trade looks to have improved significantly, but our exports are effectively unchanged.”
Larocque said employment data can be equally deceptive.
“The consensus was that we would see a small decline in employment, only to see a huge increase, but it will be part-time work, overwhelmingly among young people,” he said. “Our unemployment rate fell from 6.9 per cent to 6.5 per cent, but half of that drop was due to about 30,000 Canadians dropping out of the labor force – they stopped looking for work and were no longer counted as unemployed – and that’s not a sign of strength.”
While the details in these reports paint a more pessimistic picture than the headlines suggest, Larocque said the bond market tends to trade on the latter basis, resulting in sudden spikes in bond yields and mortgage rates along with them. Reality will eventually catch up with the market, he warned. “The details will become more important as we go forward and things calm down, but for now, there is upward pressure on rates,” he explained.
Larocque believes that as the economy slows, the Bank of Canada will resume interest rate cuts in the new year as long as inflation remains relatively stable.
How inflation, tariffs and government spending are pushing yields higher
Another factor pushing Canadian bond yields higher and raising fixed mortgage rates is the $78 billion deficit outlined in Prime Minister Mark Carney’s first federal budget last month.
“The government is putting in more money, and that’s driving our yields up, and our yields are what we price our fixed rates on,” explained Tracy Valko of Valko Financial.
Varko said another unknown driver of rising bond yields is the delayed but significant impact of U.S. tariffs on inflation, which she believes will play a larger role next year.
“It’s a lagging indicator that’s finally catching up to us,” she said.
As a result, she believes the Bank of Canada will not be able to cut interest rates as aggressively as it should and may underperform until 2026. “I think [the benchmark rate] It’s likely to stay around 2.25%, and we may see it rise slightly depending on how sticky inflation is and how much government spending is spent over the next six to eight months. “
Update wave reaches peak
As the renewal wave begins to peak, rising fixed rate costs come at a bad time for Canadians.
According to TD Economics, 60% of outstanding mortgages will be up for renewal by the end of 2026, with 40% expected to renew at higher rates.
While it’s not the economic catastrophe many feared, rising mortgage costs will put more pressure on Canadian households already struggling financially.
“I think you’re going to see a lot of people come up for renewal and not be able to refinance because they don’t have equity,” Warco warned. “If these rates continue and we don’t see them come down, it’s going to be a very challenging year for many Canadians.”
Butler agreed, adding that the wave of rebuilding will bring challenges to Canadian families, but not on the scale initially feared.
“The mortgage cliff turned into a mortgage mountain,” he said. “There’s no question that when these renewals come, borrowers will be inconvenienced, worried, feel the sting of affordability more, and will reduce their discretionary spending to afford it. But will that trigger a massive wave of foreclosures and power-of-sale options? Absolutely not.”
Butler said the flood of fixed-rate mortgages coming up for renewal in the coming months will spur price competition among Canada’s big banks as they try to maintain or grow their mortgage books amid weak lending sources.
“This is no longer seasonal; they are engaging in endless price wars all the time now,” he said. “At the end of the day, there is a real risk that the mortgage portfolio will shrink and if there’s no buying volume, you have to keep existing renewals and you have to try and take business away from your competitors.”
Advice for borrowers
Butler believes this competition invites borrowers to compare rates and even forces lenders to bid for their business.
“You have to shop,” he said. “The demand to get a better deal from your existing lender using other offers as leverage has never been more real than it is today.”
As for buyers, Butler recommends hanging on a little longer and watching the market closely, especially in Ontario, British Columbia and southern Alberta, where prices are expected to drop in 2026.
At the same time, floating rates remain a more financially attractive option in the short term, but remain difficult to swallow in the current unstable economic environment.
“There’s a lot of instability in the world, and the premium you’re paying for fixed-rate stability now is not that high compared to historically,” Larocque said. “It goes back to the old adage: If you want a good night’s sleep, go fixed; if you want to save money, go variable.”
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Bank of Canada Bond Yield DashboardDave LaRockEconomic DataEconomyFixed Mortgage Rate WarsRon ButlerTracy ValcoeVariable Mortgage Rates
Last modified: December 10, 2025
