Lenders have started raising fixed mortgage rates again, with signs pointing to a short-term upward trend.

Fixed mortgage rates have been creeping upward over the past week, fuelled by a modest rebound in bond yields following stronger-than-expected economic data.

The increases were partly driven by rising U.S. Treasury yields, with the 5-year rising above 4% following stronger-than-expected inflation data. That, in turn, helped lift Canadian bond yields, which are closely linked to their U.S. counterparts.

On this side of the border, Canada’s strong June employment report added to the momentum. Since fixed mortgage rates are closely tied to government bond yields, the upward pressure was enough to prompt some lenders to raise pricing, particularly on 3- and 5-year terms.

Rate hikes of around five to 10 basis points (0.05 to 0.10 percentage points) were seen by some lenders over the past week, with further increases continuing into this week.

While the changes varied by lender, they reflect what some observers see as a short-term trend toward higher fixed rates.

“Some lenders responded by increasing their fixed mortgage rates on Friday and I expect others to follow,” wrote mortgage broker Dave Larock. “Those increases are consistent with my recent assessment that bond yields, and the fixed mortgage rates that are priced on them, now have an upward bias.”

Ron Butler of Butler Mortgage said the upward move in longer-term yields is also being shaped by broader fiscal pressures. “The spectre of growing government deficits all over the world is creating capacity concerns,” he told Canadian Mortgage Trends.

He added that 3- to 5-year fixed mortgage rates—currently in the 4% range—will likely stay around these levels for the next few months.

Inflation data firm expectations for BoC hold

Larock noted that while June’s jobs data may not significantly affect the Bank of Canada’s rate outlook, the June inflation results released Tuesday will. Statistics Canada reported that the country’s annual inflation rate ticked up to 1.9% in June, with core inflation measures remaining stubborn.

That firmed expectations the Bank of Canada will hold its key rate on July 30, which would mean no change for existing variable-rate and HELOC borrowers.

“The central bank will almost certainly hold this month,” Butler said, though he still sees the potential for a cut later in the year. “No cuts from the BoC in July or September seem likely, but I expect one in October or December as the economy worsens.”

Many fixed terms still closely priced

Despite the recent hikes, Larock pointed out that fixed rates remain below their long-term averages. Term premiums, which are typically the extra cost of locking in for longer, are starting to return, but many popular fixed terms are still priced similarly.

In cases where 3- and 5-year terms are comparable, Larock said he continues to favour the 5-year fixed.

He added that variable rates are likely to deliver the lowest overall borrowing cost over time, assuming rate cuts materialize as expected. But he cautions that variable-rate borrowers need to be prepared for continued volatility and higher payments if the timing of those cuts shifts further out.

“Anyone choosing a variable rate should do so only if they can live with its inherent potential for volatility and if they have the financial capacity to withstand higher costs (and, in some cases, higher payments) should my forecast prove incorrect,” he wrote.

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Canada’s big banks are divided on how much further the Bank of Canada will cut, with RBC now saying the rate has likely bottomed, while others still expect more easing ahead.

Fed’s interest rate hike policy. Profits from raising interest rates or investments. A businessman looking through a telescope standing next to a percentage sign. flat vector illustration.

The outlook for interest rates is becoming less clear-cut as Canada’s major banks rethink how far the Bank of Canada will go in its rate-cutting cycle. While most still see room for further easing, RBC is breaking away from the pack.

The bank has taken additional cuts off the table, forecasting the overnight rate will hold steady at 2.75% through 2026—making it the most hawkish forecast among the Big Six.

In its latest Monthly Forecast Update, RBC said: “We no longer expect any rate cuts from the BoC this year.” The bank explained that “as direct trade uncertainty facing Canada recedes…the inflation outlook remains uncertain,” reducing pressure on the central bank to act further.

That’s a shift from earlier this year, when RBC still expected one more cut before the cycle ended.

By contrast, Scotiabank has revised its forecast lower, now projecting the policy rate to settle at 2.25%—down from 2.50% in its previous estimate. BMO, meanwhile, remains the most dovish, continuing to project a fall to 2.00% by early 2026.

TD, CIBC and National Bank continue to expect a terminal rate of 2.25%, in line with the Bank of Canada’s current inflation outlook.

CMBS delinquencies edge down as payoff activity stays strong

Canadian CMBS delinquencies ticked lower in May, with Morningstar DBRS reporting a 1.0% delinquent or specially serviced rate—down from 1.1% in April and well below the U.S. rate of 7.5%.

According to Morningstar DBRS, overall maturity payoff rates held at 100%, with no realized losses reported in May. Loans across all size categories and debt service coverage ratio (DSCR) tiers were paid in full at maturity or prepaid ahead of schedule.

The number of loans still operating under pandemic-era forbearance also continued to decline. As of May, 19 loans with deferred balances remain, though most have resumed regular payments. Outstanding balances tied to forbearance are now concentrated in select property types—particularly retail and hotel assets—and are mostly located in Ontario and Quebec.

Morningstar DBRS also flagged that while most COVID-impacted loans are performing again, a few continue to show signs of strain, particularly those in regions hit hard by broader economic shifts.

Overall, the report suggests continued resilience in the Canadian CMBS market, with improving delinquency trends and strong repayment performance.

Ontario credit union assets edge higher in Q4, but mortgage growth remains slow

Ontario’s credit unions continued to expand their balance sheets in Q4 2024, with total assets rising to $99.61 billion, up 3.37% year-over-year, according to FSRA’s latest Sector Outlook report.

Growth was led by a $1.42-billion jump in commercial lending and a 9.44% increase in cash and investments. Residential mortgage growth remained muted, up just 1.02% annually, reflecting subdued housing activity.

Profitability improved slightly, with return on average assets rising to 0.24%, up three basis points from Q3, driven by lower interest paid to depositors.

However, credit quality showed some deterioration. The delinquency rate on residential mortgages climbed to 0.87%, up 31 basis points from a year earlier.

FSRA noted the broader debt picture is improving, as StatCan data shows Canada’s household debt-to-income ratio declined to 170.1% in Q3 2024, down from 175.0% a year earlier.

Many renters still holding off on buying, despite falling rates and prices

More than a quarter of Canadian renters considered buying before signing or renewing their current lease, according to a new Royal LePage survey, but most ultimately chose to wait.

Even with home prices softening and borrowing costs easing, 40% of surveyed renters said they’re holding out for even lower prices. Another 29% are waiting for further rate cuts, while 28% say they’re still saving for a down payment.

Despite these hurdles, 54% of renters say they plan to buy eventually. Of those, 16% hope to do so within two years, and 21% within five.

“Entry-level opportunities have improved significantly,” said Royal LePage CEO Phil Soper, who noted that incomes are rising and some of the least affordable cities are becoming more accessible. “Still, many renters… are choosing to wait. History suggests they may be disappointed.”

A growing supply of purpose-built rentals and softer demand—partly due to capped international student permits—has also eased rental prices. According to Rentals.ca and Urbanation, average national rents for one- and two-bedroom units declined 3.6% and 4.6% year-over-year, respectively, in May.

Still, affordability remains an issue. Nationally, 37% of renters spend between 31% and 50% of their net income on rent, and 15% spend more than half. Many are also cutting back—on groceries, savings, or even taking on second jobs—to keep up.

“Even with several months of decreases, rents are still significantly higher than they were just a few years ago,” Soper said, calling for “meaningful policy action” to restore long-term affordability.

Mortgage arrears edged up slightly in April

The number of Canadian mortgages in arrears ticked up slightly in April, reaching 10,910 loans, or 0.22% of all residential mortgages, according to the latest data from the Canadian Bankers Association.

Saskatchewan continues to report the highest arrears rate in the country at 0.53%, followed by Manitoba at 0.32% and both Atlantic Canada and Alberta at 0.27%. In contrast, Quebec (0.18%), British Columbia (0.19%), and Ontario (0.20%) all remain below or near the national average.

Despite the modest increase, arrears levels remain low by historical standards, and well below the current 1.52% mortgage arrears rate in the U.S.

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The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%.

Since the April Monetary Policy Report, the US administration has continued to increase and decrease various tariffs. China and the United States have stepped back from extremely high tariffs and bilateral trade negotiations have begun with a number of countries. However, the outcomes of these negotiations are highly uncertain, tariff rates are well above their levels at the beginning of 2025, and new trade actions are still being threatened. Uncertainty remains high.

While the global economy has shown resilience in recent months, this partly reflects a temporary surge in activity to get ahead of tariffs. In the United States, domestic demand remained relatively strong but higher imports pulled down first-quarter GDP. US inflation has ticked down but remains above 2%, with the price effects of tariffs still to come. In Europe, economic growth has been supported by exports, while defence spending is set to increase.  China’s economy has slowed as the effects of past fiscal support fade. More recently, high tariffs have begun to curtail Chinese exports to the US. Since the financial market turmoil in April, risk assets have largely recovered and volatility has diminished, although markets remain sensitive to US policy announcements. Oil prices have fluctuated but remain close to their levels at the time of the April MPR.

In Canada, economic growth in the first quarter came in at 2.2%, slightly stronger than the Bank had forecast, while the composition of GDP growth was largely as expected. The pull-forward of exports to the United States and inventory accumulation boosted activity, with final domestic demand roughly flat. Strong spending on machinery and equipment held up growth in business investment by more than expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence. Housing activity was down, driven by a sharp contraction in resales. Government spending also declined. The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9%. The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued.

CPI inflation eased to 1.7% in April, as the elimination of the federal consumer carbon tax reduced inflation by 0.6 percentage points. Excluding taxes, inflation rose 2.3% in April, slightly stronger than the Bank had expected. The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up. Recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs. The Bank will be watching all these indicators closely to gauge how inflationary pressures are evolving.

With uncertainty about US tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on US trade policy and its impacts. We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs.

Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve.

We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled.

Information note

The next scheduled date for announcing the overnight rate target is July 30, 2025. The Bank will publish its next MPR at the same time.

This press release is from the Bank of Canada website.