Variable rates held steady with the Bank of Canada’s decision this week, but fixed mortgage rates are moving higher.
After trending downward for much of November, Canadian mortgage lenders began upping their fixed mortgage rates in response to stronger than expected economic data, and experts say those higher costs are likely here to stay.
Despite dipping as low as 3.69% for high-ratio borrowers just weeks ago, 5-year fixed rates are now largely back above 4%, driven higher by a surge in bond yields following unexpectedly strong jobs and GDP data.
Upticks in foreign bond markets — such as those in the United States, the United Kingdom, the euro area and Japan — are also taking Canadian bond yields along for the ride, and with them, fixed mortgage prices.
“On the 27th of November, 5-year bond yields were at 2.70%, they recently went to 3.10%, that’s a 40-basis point jump in 14 days,” explains Ron Butler of Butler Mortgages. “Now we see most fixed rates moving from being under four to over four [per cent].”
While fixed rates are rising for now, Butler expects the Bank of Canada to keep its policy rate — which drives variable mortgages — on hold in January and March before beginning to cut later next year. “The reason is the continued deterioration of the Canadian economy,” he argues.
Is the economy as strong as it looks?
Strong economic headlines — namely an increase of 53,600 jobs in Canada in November and 2.6% annualized GDP growth in the third quarter — may not tell the full story, even if they are driving the market.
“The reason for the strong GDP growth was the result of a big swing in the ratio of imports to exports,” explains David Larock of Integrated Mortgage Planners. “Imports dropped considerably, exports were basically flat, and because of that it looked like our net trade significantly improved, but our exports didn’t actually change.”
Larock says the jobs data may be similarly deceptive.
“The consensus had expected we’d have a small decrease, and instead we had a massive increase, but it was all part-time jobs, and the vast majority of them were for young people,” he says. “Our unemployment rate dropped from 6.9% to 6.5%, but half of that drop was due to the fact that about 30,000 Canadians withdrew from the labour force — they stopped looking for work and are no longer counted as unemployed — and that’s not a sign of strength.”
Though the details in those reports paint a more pessimistic picture than the headlines suggest, Larock says bond markets tend to trade on the latter, hence the sudden spike in bond yields — and with them, mortgage rates. Eventually, he warns, reality will catch up to the market. “The details will matter more as we go, and things will cool off, but for now, there’s upward pressure on rates,” he explains.
Larock, for his part, believes the Bank of Canada will resume cutting interest rates in the new year as the economy slows, provided inflation remains relatively stable.
How inflation, tariffs and government spending are pushing yields higher
Another factor pushing Canadian bond yields higher — and lifting fixed mortgage rates — is the $78-billion deficit outlined in Prime Minister Mark Carney’s first federal budget unveiled last month.
“The government is spending more money, it’s driving our yields up, and our yields are what our fixed rates are priced on,” explains Tracy Valko of Valko Financial.
Another under-the-radar driver of higher bond yields, according to Valko, is the delayed but significant impact of American tariffs on inflation, which she believes will play an even greater role next year.
“It’s been a lagging indicator, and eventually that catches up with us,” she says.
As a result, she doesn’t think the Bank of Canada is able to cut as aggressively is it should and may be prevented from doing so well into 2026. “I think [the benchmark rate] will potentially stay around 2.25%, and we might see it increase a bit depending on how sticky inflation is and how much government spending is going to happen over the next six to eight months.”
The renewal wave crests
Higher fixed-rate costs are coming at an inopportune moment for Canadians as the renewal wave begins to crest.
According to TD Economics, 60% of outstanding mortgages will renew by the end of 2026, and 40% are expected to do so at higher rates.
Though it’s not the economic catastrophe many had feared, higher mortgage costs will put added pressure on Canadian households already struggling in a difficult economy.
“I think that you’re going to see a lot of people not being able to refinance at time of renewal because they won’t have the equity,” Valko warns. “If these rates stick and we don’t see them coming down, it’s going to be a very challenging year for a lot of Canadians.”
Butler agrees, adding that the renewal wave will create challenges for Canadian households, but not at the scale originally feared.
“The mortgage cliff turned into a mortgage hill,” he says. “There’s absolutely no question that borrowers are inconvenienced, are worried, are feeling the sting of affordability more when these renewals come in and will reduce discretionary spending to afford it. But will it trigger a massive wave of foreclosures and powers of sale? Absolutely not.”
The large number of fixed-rate mortgages coming up for renewal in the months ahead will spur price competition among Canada’s big banks, Butler says, as they try to maintain or grow their mortgage books amid weak originations.
“It’s no longer seasonal; they are now engaged in an endless rate war at all times,” he says. “At the end of the day, there’s a real risk of mortgage portfolios shrinking, and without purchase volume, you have to hold on to your existing renewal book, and you have to try and take business away from competitors.”
Advice to borrowers
That competition, according to Butler, is an invitation for borrowers to compare rates and even force lenders to bid on their business.
“You have to shop,” he says. “The requirement to use other quotes as leverage to get a better deal from your existing lender has never been more real than it is today.”
As for buyers, Butler suggests holding on a little longer and keeping an eye on the market, especially in Ontario, B.C. and Southern Alberta, where prices are expected to decline in 2026.
Variable rates, meanwhile, remain a slightly more financially attractive option in the short term, but will remain difficult to stomach in this volatile economic climate.
“There’s a lot of instability in the world, and the premium you have to pay for fixed-rate stability right now isn’t too wide by historical comparison,” says Larock. “It’s back to that classic adage: if you want a good night’s sleep, go fixed; if you want to save money, go variable.”
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Last modified: December 10, 2025
