Spring mortgage season is bringing better fixed-rate deals, but not all borrowers are seeing relief. While lenders continue trimming fixed rates, discounts on variable rates are shrinking.

If you’re in the market for a mortgage this spring, you’ve probably noticed fixed rates are continuing to trend lower.

That’s thanks in large part to falling bond yields, which drive fixed-rate pricing, and a fresh wave of spring competition among lenders.

In the past week alone, some banks and monolines have cut 3- and 5-year fixed mortgage rates by 10 to 20 basis points.

“The spring market starts now,” mortgage analyst Ron Butler recently told Canadian Mortgage Trends, pointing to what’s typically the busiest—and most competitive—season in the mortgage cycle. With many high-ratio fixed rates now dipping below 4% for the first time in months, Butler says the pricing war is well underway.

According to rate expert Ryan Sims, big banks are especially keen to compete right now after a sluggish start to the year for mortgage originations. That’s translating into sharper fixed-rate offers across the board.

But when it comes to variable-rate mortgages, it’s a different story altogether.

While the Bank of Canada’s overnight rate dropped another 25 basis points earlier this month, lenders are quietly reducing their variable-rate discounts off prime—effectively making new variable-rate mortgages more expensive.

It’s a trend that hasn’t gone unnoticed by brokers and borrowers alike.

As more borrowers eye variable products in anticipation of future BoC rate cuts—as reflected in the latest big bank rate forecasts—lenders are adjusting pricing, but not for the usual reasons.

While fixed mortgage rates tend to move with bond yields, variable rates are tied to the Bank of Canada’s overnight rate. However, the discounts lenders offer off their prime rate can shrink when credit spreads widen—that is, when the cost of borrowing for lenders increases relative to government bond yields.

This means that even as bond yields fall, lenders may reduce variable-rate discounts to preserve their profit margins in the face of rising credit costs.

EconoScope:
Upcoming key economic releases to watch

Country	Date	Time (ET)	Release	Previous reading
	Wed March 26	1:30 p.m.	BoC Summary of Deliberations
	Wed. March 26	8:30 a.m.	Durable Goods Orders (February)	+3.1% MoM $282.3B
	Thurs. March 27	8:30 a.m.	Survey of Employment, Payrolls and Hours (January)	+25.3k (+0.1%)
	Thurs. March 27	8:30 a.m.	Initial Jobless Claims (Mar 22)
	Thurs. March 27	8:30 a.m.	Real GDP (Q4, third estimate)	+2.3%
	Thurs. March 27	8:30 a.m.	Advance Economic Indicators Report (February)
	Thurs. March 27	10:00 a.m.	Pending Home Sales (February)	-4.6%
	Fri. March 28	8:30 a.m.	Monthly Real GDP (January)	+0.2%
	Fri. March 28		Ottawa’s Fiscal Monitor for January (expected)
	Fri. March 28	8:30 a.m.	Personal Income & Consumption (February)	Income: +0.9%
	Fri. March 28	10:00 a.m.	University of Michigan Consumer Sentiment Index (March final)	57.9

This is part of a post written for Canadian Mortgage Trends by Steve Huebl on Mar 25, 2025.

Canadian Inflation surged to 2.6% in February, much stronger than expected.

The Consumer Price Index (CPI) rose 2.6% year-over-year (y/y) in February, following an increase of 1.9% in January. With the federal tax break ending on February 15, the GST and HST were reapplied to eligible products. This put upward pressure on consumer prices for those items, as taxes paid by consumers are included in the CPI.

While the second straight acceleration in the headline number was expected, the pace of price gains may still surprise Bank of Canada policymakers, who cut interest rates for the seventh straight meeting. Donald Trump’s tariff threats hamper business and consumer spending. But assuming the federal sales tax break hadn’t been in place, Canadian inflation would have jumped even higher to 3% in February. This is at the upper bound of the bank’s target range, from 2.7% a month earlier. Canadian inflation has not been at or above 3% since the end of 2023.

Faster price growth was broad-based in February, the end of the goods and services tax (GST)/harmonized sales tax (HST) break through the month contributed notable upward pressure to prices for eligible products. Slower growth for gasoline prices (+5.1%) moderated the all-items CPI acceleration.

The CPI rose 1.1% m/m in February and 0.7% on a seasonally adjusted basis.  However, the increase exceeded the tax impact as seasonally-adjusted CPI excluding the tax impact was +0.4%. And, in case you want to pin it on food & energy, CPI excluding food, energy & taxes was +0.3%.

Gains were across the board, with the sectors impacted by the tax change seeing the most significant increase: recreation +3.4%, food +1.9%, clothing +1.6%, and alcohol +1.5% more to come next month, with the tax holiday only ending in mid-February. The headline inflation figures are subject to as much noise as we’ve seen in decades. They are poised to continue for at least another couple of months, making it very challenging to interpret the inflation data.

As a result, prices for food purchased from restaurants declined at a slower pace year over year in February (-1.4%) compared with January (-5.1%). Restaurant food prices contributed the most to the acceleration in the all-items CPI in February.

Similarly, on a yearly basis, alcoholic beverages purchased from stores declined 1.4% in February, following a 3.6% decline in January.

On a year-over-year basis, gasoline prices decelerated, with a 5.1% increase in February following an 8.6% gain in January. Prices rose less month over month in February 2025 compared with February 2024, when higher global crude oil prices pushed up gasoline prices, leading to slower year-over-year price growth in February 2025. Month over month, gasoline prices rose 0.6% in February. This increase was primarily related to higher refining costs amid planned refinery maintenance across North America. This offset lower crude oil prices, mainly due to increased American supply and tariff threats, contributing to slowing global growth concerns.

One notable exception to the broad-based strength was shelter, rising “just” 0.2%. That’s the smallest gain in five months, trimming the yearly pace to 4.2%, the slowest since 2021, with more downside to come. Mortgage interest costs rose a modest 0.2% for a second straight month, slicing it to +9% y/y, ending a 2½-year run of double-digit increases.

Not surprisingly, the core inflation metrics were firm as well. CPI-Trim and Median both rose 0.3% m/m and 2.9% y/y. The 3- and 6-month annualized rates are all above 3% as well, pointing to ongoing stickiness. The breadth of inflation, which has been a focus for the Bank of Canada, also worsened with the share of items rising 3%+ increasing modestly. None of this is encouraging news for policymakers.

Bottom Line

This report will reinforce the Bank of Canada’s cautious stance on easing to mitigate the impact of tariffs. Notably, the upcoming end of the carbon tax will cause inflation to drop sharply in April. However, March may see an increase in inflation as the effects of the tax holiday begin to reverse. There is still a lot of uncertainty surrounding inflation, which complicates the job of policymakers. We will see what April 2 brings regarding additional tariffs.

If the economic outlook did not worsen, the Bank of Canada might consider pausing after cutting rates at seven consecutive meetings. However, the Canadian economy will likely slow significantly in the coming months.

Bank of Canada Governor Tiff Macklem said last week the bank would “proceed carefully”amid the tariff war. Economists are still awaiting more clarity on tariffs before firming up their expectations for the next rate decision on April 16, when policymakers will also update their forecasts. Right now, traders are betting that the BoC will hold rates steady in April, but a lot can and will happen before then.

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