Bank of Canada rate decisions 2025: continued easing to 2.25%

The easing cycle that began with a cautious 25-basis-point cut in June 2024 continued through 2025, bringing the Bank of Canada's overnight rate from 3.25% to 2.25% over the course of the year. Four cuts, two in the first half and two in the second, brought rates to their lowest level since mid-2022.8 The pace was more measured than 2024's moves, and the Bank paused four times, in April, June, July and December, as trade uncertainty clouded the outlook. For Ontario borrowers, 2025 delivered meaningful relief, but the rate environment remains fundamentally different from the pandemic era that many homeowners still use as their reference point.2

2025: Four Cuts and Four Holds

The year played out in two distinct phases. The first quarter saw two quick 25-basis-point cuts as the Bank continued the momentum from late 2024. Then came an extended pause through April, June and July as the Bank waited for clearer signals amid high trade uncertainty, following 225 basis points of easing since June 2024.43

The second phase began in September, when economic data, particularly a contraction in GDP of about 1½% (annualized) in the second quarter and an unemployment rate that had risen to 7.1% in August, prompted the Bank to resume cutting.84 Two more 25-basis-point reductions brought the rate to 2.25% by October, followed by a year-end hold at December's meeting.56

Core inflation measures ran close to 3% through the autumn, and the Bank put them in a range of 2½% to 3% in December, with CPI inflation at 2.4% in September and 2.2% in October.45 By the December meeting, the economy had grown 2.6% in the third quarter (which the Bank said mostly reflected volatility in trade) and unemployment had fallen to 6.5%, and the Bank described the 2.25% rate as about the right level to keep inflation close to 2% while the economy adjusted to trade disruption.6

Where Mortgage Rates Stand Now

The Bank's cuts flow through to variable-rate mortgages by moving the prime rate that lenders set. Prime stood at 4.45% through the fourth quarter of 2025, following the October 29 cut.5 OAC. Rates subject to change. Conditions apply.

Fixed rates price independently off Government of Canada bond yields rather than the overnight rate, so they move on a separate track. Industry rate coverage reported discounted five-year fixed offers for well-qualified borrowers in the high-3% range during 2025, dipping as low as 3.64% for high-ratio mortgages in early May before rising by roughly 10 to 20 basis points, while some lenders also trimmed their variable-rate discounts off prime.12

The net effect, as reported in spring 2025, was that fixed rates crept up while some variable discounts shrank, which narrowed the gap between them. The exact gap on any given day depends on the lender, the product and the borrower's qualifications, so confirm current pricing directly with a broker before relying on any specific figure.

The Ontario Housing Market in 2025

The GTA housing market gave buyers more choice in 2025. The Toronto Regional Real Estate Board's sales-to-new-listings ratio (SNLR, a 12-month moving average) stood at 36.6% in March, with new listings up 28.6% year-over-year against a 23.1% drop in sales.11

Nationally, housing starts rose 5.6% year-over-year to 259,028 units in 2025, the fifth-highest annual total on record, though CMHC noted fading construction momentum through the year.9 In Toronto specifically, actual starts dropped 41% year-over-year in January, driven by decreases in multi-unit starts.10

Fixed vs. Variable: A Closer Race

With fixed rates creeping up and some variable discounts shrinking in 2025, the gap between them narrowed, so the choice was less one-sided than before. The decision comes down to a few key considerations:

• If you believe further cuts are coming: Variable offers the chance to benefit from additional rate reductions. If the Bank cuts further in 2026, your variable rate drops accordingly.
• If you believe the cutting cycle is over or nearly over: Fixed locks in a rate that is already far below the 2023 peak. You avoid the risk that rates plateau or edge higher if inflation reaccelerates.
• If your budget is tight: Fixed provides certainty. With the volatility of the past four years, knowing exactly what your payment will be for five years has real psychological and financial value.

What This Means for an Ontario Homeowner

The following is a hypothetical, illustrative example using rounded figures. It is not an actual client file, the rates shown are not an offer, and actual payments depend on the lender, product and the day a rate is locked. OAC. Rates subject to change. Conditions apply.

Consider a homeowner in Mississauga with a 5-year fixed rate of 2.19% that expired in mid-2025, with a remaining balance of approximately $570,000 and 20 years left to pay.

At renewal, assume an illustrative 5-year fixed rate of about 3.8%. Their new monthly payment on a 20-year remaining amortization is approximately $3,385, up from about $2,930, an increase of roughly $455 per month, or about $5,460 per year.

That increase is real, but smaller than it would have been renewing at the much higher rates that prevailed through most of 2023 and 2024, when posted and discounted five-year fixed rates were both substantially higher than today. The point of the example is the direction, not the exact figure: the 2025 easing cycle has materially lowered renewal payments compared with a renewal earlier in the cycle.

For a condo investor in the GTA carrying a $450,000 mortgage on 25-year amortization, a hypothetical variable rate decline from about 6.7% in early 2024 to about 3.6% by late 2025 represents a payment reduction of roughly $800 per month. A difference of that size can be the margin between positive and negative cash flow.

What Could 2026 Bring?

The Bank of Canada has brought the overnight rate from a peak of 5.00% to 2.25% over about two years, a total reduction of 275 basis points.16 The Bank itself has described the resulting rate as about the right level to keep inflation close to 2% while the economy adjusts to trade disruption.6

What happens from here depends on factors that remain genuinely uncertain:

• Trade policy: Tariff tensions were a recurring theme in 2025. Escalation could weaken the Canadian economy and justify further cuts. De-escalation could remove a source of uncertainty and support a prolonged hold.
• Inflation trajectory: CPI inflation eased to 2.2% in October and has been close to the Bank's 2% target for more than a year.6 If it stays near target, the Bank has room to hold or ease further; if it reaccelerates, the conversation shifts to a prolonged hold.
• GDP growth: The Bank's own October 2025 projection calls for GDP growth of 1.1% in 2026, picking up to 1.6% in 2027, though private forecasters differ depending on how trade tensions evolve.5

By the end of 2025, both variable and fixed mortgage rates were lower than at any point since mid-2022. For Ontario borrowers who have been waiting to buy, renew or refinance, that is a meaningfully different starting point than a year earlier. Rates can still move either way, and a mortgage broker can model your options against a range of scenarios before you decide.

The one thing we have learned from the past five years is that rate predictions are unreliable. Nobody in 2020 predicted the speed of the hikes. Nobody in early 2023 predicted the size of the cuts. The best approach for any borrower is to understand your current situation, model a range of scenarios, and make the decision that works for your budget and risk tolerance today. A broker can help with all of that.