Canadian Mortgage Market 2025: Rate Normalization and Cautious Recovery

The Canadian mortgage market in 2025 moved from the rate increases of 2022 and 2023 toward something closer to normal. The Bank of Canada eased its overnight rate from 3.25% to 2.25% over the year. Housing starts rose. The pandemic-era renewal wave continued, and many borrowers faced higher payments at renewal.21

Normal, of course, is relative. Trade uncertainty, slower economic growth, and an unresolved housing supply gap mean that conditions can change quickly. This article sets out what happened in 2025, with dates and sources.

Four More Cuts: From 3.25% to 2.25%

The Bank of Canada cut its policy rate four times in 2025 and held at other meetings:43

The total easing from the July 2023 peak of 5.00% to December 2025 was 275 basis points. The Bank cut in September after a decline in second-quarter GDP, which the Bank put at about 1.5%.5 The Bank held at 2.25% on December 10, 2025. Future decisions depend on economic data.6

Rate Choices and the Renewal Wave

Variable mortgage rates are tied to the prime rate, which moves with the Bank of Canada's policy rate. As the Bank cut in 2025, variable rates generally fell. Fixed rates did not follow the policy rate in the same way, because they are set mainly from Government of Canada bond yields, which reflect market expectations about future rates.

The Pandemic Renewal Wave

Many borrowers who took five-year fixed mortgages during 2020 and 2021 reached renewal in 2025 and 2026. A renewal payment depends on the balance still owing, the rate offered at renewal, and the remaining amortization. Borrowers should compare current lender offers before renewing.

For illustration only, a $450,000 balance amortized over 25 years at 1.89% has a monthly payment of about $1,882. If the rate at renewal were an assumed 4.29%, the payment would be about $2,438, an increase of about $556 a month, or roughly 30%. The 4.29% is an assumption for this example, not a current rate. The calculation uses semi-annual compounding, the Canadian convention, and excludes insurance and fees. A lower payment does not by itself mean a lower total cost.

Housing Starts: Progress, but Not Enough

Update, January 2026: CMHC reported that housing starts totalled 259,028 units in 2025, up 5.6% from 2024, and described this as the fifth-highest annual total on record.7 That full-year figure was published after this article's original date, so it appears here as an update.

CMHC also noted that construction momentum weakened in the second half of 2025, with the six-month trend in starts declining from September.7

CMHC's 2023 estimate was that Canada needed about 3.5 million additional homes by 2030 to restore affordability.8 That estimate is dated. Newer CMHC analysis should be checked before it is relied on. Housing supply remains a central question for affordability in Ontario and elsewhere.

An Illustrative Borrower Scenario

Illustrative scenario: a first-time buyer in Toronto. A first-time buyer with a household income of $95,000 buys a condo at a purchase price of $525,000. With 10% down ($52,500), the mortgage is $472,500. At an assumed five-year fixed rate of 3.89% over a 25-year amortization, the monthly principal and interest payment is about $2,457.^* The rate is an assumption for this example, not a quote. Check current rates with a lender. The scenario excludes mortgage default insurance, which is required when the down payment is under 20%, and property taxes and condo fees.

* Real names have been replaced with fictional names. This case is illustrative.

Heading into 2026: Genuine Uncertainty

The direction of mortgage rates in 2026 is uncertain. Several factors are relevant:

• Trade and tariffs. Trade measures and their effects on Canadian growth could influence the Bank of Canada's decisions in either direction.
• Is the easing cycle over? The Bank held at 2.25% on December 10, 2025. Whether it cuts again depends on economic data. This article does not forecast the Bank's next decision.
• Fixed rates. Fixed rates depend on bond yields, which can change even when the policy rate does not.
• Housing supply. CMHC's estimates of the supply gap, cited above, suggest that supply remains a structural issue for affordability.

Nobody can forecast the market reliably. Anyone considering a purchase, renewal or refinance should speak with a licensed mortgage professional about their own situation.