The Bank of Canada has sent a clear signal to borrowers and the wider economy: a period of prolonged interest rate stability is now underway. After a series of nine cumulative rate cuts between June 2024 and October 2025, the central bank has indicated it is settling into a holding pattern, with no immediate plans to move its benchmark rate. This shift brings a new era of predictability for mortgage shoppers, particularly those with or considering variable-rate products.
A New Phase of Stability for Borrowers
This decisive move by the Bank of Canada marks a significant pivot from the tumultuous rate hikes of 2022 and 2023 and the subsequent easing cycle. The cumulative cuts have lowered the benchmark borrowing rate by 275 basis points, leaving the prime rate at 4.45 percent. As a direct result, the most competitive variable mortgage rates in Canada are now priced around the 3.4 percent mark, representing the most attractive pricing since the summer of 2022.
The central bank's current projection is for this rate hold to remain in place until at least the latter part of 2026, contingent on the economy meeting its expectations. The key conditions are inflation staying close to the bank's 2-per-cent target and businesses continuing to adapt to evolving export and trade dynamics. The bad news for borrowers hoping for further relief is that this period is seen as the tail end of the cutting cycle; no further discounts are expected.
Navigating the Mortgage Landscape in a Hold Environment
For now, variable mortgage rates stand as the cheapest borrowing option, a position they are expected to maintain for most of 2026. Volatility in the bond market is likely to keep fixed-rate mortgages elevated, with the current spread between the lowest five-year fixed and variable terms at 49 basis points. This gap is already steering many borrowers away from locking in, a trend that will intensify if fixed rates climb further.
Choosing a variable-rate mortgage, however, requires a strategic approach and a tolerance for risk. Experts advise taking two crucial steps immediately:
- Secure a Rate Hold or Full Preapproval: In a prolonged lower-rate environment, lenders often increase their profit margins by widening the spread between their offered rates and the prime rate. Locking in a rate now guarantees access to today's more favorable spread.
- Choose the Right Product Type: With rates expected to hold and then potentially rise, flexibility is paramount. Opt for a mortgage that allows conversion to a fixed rate without triggering refinance fees. Also, consider a fully adjustable-rate mortgage, where both your rate and payment change with the prime, over a static-payment variable mortgage. The latter risks hitting a "trigger rate" if payments only cover interest, a problem many faced during the 2022-2023 hiking cycle.
Strategic Moves for the Future
While the consensus among economists is that the economy will firm up by 2027, potentially leading the Bank of Canada to resume hiking rates to combat inflation, borrowers can use the current stability to their advantage. A smart strategy is to leverage temporarily lower rates to pay down the principal faster.
Seek out mortgage products that offer generous prepayment privileges, typically between 15 and 20 percent, allowing for lump-sum payments or accelerated bi-weekly schedules. This approach reduces the total interest paid over the life of the loan and shrinks the debt burden before any future rate increases occur. Taking these steps now will better position homeowners to weather any shifts in the interest rate landscape that 2027 and beyond may bring.
Penelope Graham is the head of content at Ratehub.ca.
