As we move deeper into 2026, one thing is clear: interest rate expectations have never been more divided. While the Bank of Canada has maintained a steady hand through the first half of the year, the outlook for the remainder of 2026 is anything but settled. Borrowers, homeowners, and buyers are all asking the same question; where are rates headed next?

The honest answer: it depends on which economic force wins the tug‑of‑war currently playing out beneath the surface.

Below is a clear breakdown of the competing pressures shaping rate expectations for the rest of the year, and what Canadians should be watching.

Why Some Expect Rate Cuts Later in 2026

A growing number of analysts believe the Bank of Canada may need to ease rates before the year ends. Their reasoning is rooted in several weakening indicators:

Job creation has cooled, and certain sectors are showing signs of fatigue. When hiring slows, consumer spending typically follows; a signal that the economy may be losing momentum.

2. Rising Insolvency Filings

Both consumer and business insolvencies have been trending upward. This is often one of the clearest signs that higher borrowing costs are straining households and companies.

3. Softening Economic Output

GDP growth has been modest, and many Canadians are feeling the weight of elevated mortgage and credit payments. A softer economy generally increases the likelihood of rate relief.

Together, these indicators suggest that the Bank may eventually need to provide support, especially if economic conditions deteriorate further in the second half of the year.

Why Others Believe Rates Could Still Rise

On the other side of the debate, some economists argue that the Bank of Canada may be forced to raise rates if inflation refuses to cool.

1. Oil Prices Are a Key Wildcard

Rising oil prices remain one of the biggest inflation risks. Energy costs feed directly into transportation, manufacturing, and consumer goods. If oil continues to climb, inflation could re‑accelerate, and the Bank has been clear that inflation control remains its top priority.

2. Sticky Service‑Sector Inflation

Even as goods inflation cools, service‑sector inflation (restaurants, travel, insurance, personal services) has remained stubborn. This is the type of inflation that central banks watch closely.

3. Global Pressures

Geopolitical tensions, supply chain disruptions, and commodity volatility can all push inflation higher, limiting the Bank’s ability to cut.

If inflation proves persistent, the Bank may have little choice but to hold rates higher for longer; or even tighten further.

Trade Negotiations Could Add More Uncertainty

The upcoming CUSMA negotiations add another layer of unpredictability. Early expectations suggest the discussions may be tense, and any instability in trade relations could:

• Slow economic activity

• Increase business uncertainty

• Push prices higher depending on tariff outcomes

• Amplify the negative indicators already emerging

This means trade outcomes could influence whether the Bank leans toward easing or tightening later in the year.

So What Does This Mean for Borrowers in 2026?

With so many competing forces, the best strategy is preparation and flexibility.

Variable‑Rate Borrowers

Expect continued short‑term stability, but be prepared for movement in either direction. The second half of 2026 could bring meaningful changes depending on how inflation and economic data evolve.

Fixed‑Rate Shoppers

Fixed rates will continue to react to bond yields, which are highly sensitive to economic data and global events. Opportunities may appear in windows, staying informed is key.

Renewing Homeowners

If your renewal is coming up in 2026 or early 2027, start planning early. Even small shifts in rates can significantly impact monthly payments.

Buyers

Uncertainty doesn’t eliminate opportunity. As the market adjusts, buyers may find more negotiating power or improved affordability depending on how rates move.

Final Thoughts

The rest of 2026 is shaping up to be a year defined by competing economic narratives. Inflation risks remain, but so do signs of economic strain. Until one side clearly outweighs the other, rate expectations will remain split, and the Bank of Canada will continue to navigate a narrow path.

Through all of this, informed planning is your best advantage. Whether you’re buying, renewing, or simply trying to understand how rate movements affect your long‑term strategy, I’m here to help you make confident, well‑timed decisions.

On April 16, 2025, the Bank of Canada announced its decision to maintain the policy interest rate at 2.75%, marking the first pause after seven consecutive rate cuts since June 2024. This decision reflects the central bank's cautious approach in navigating the economic challenges posed by ongoing trade tensions with the United States.

Key Factors Behind the Decision

The Bank of Canada cited significant uncertainty surrounding U.S. trade policies and tariffs as a primary reason for holding the rate steady. Governor Tiff Macklem emphasized that the unpredictable nature of these trade disruptions has made it difficult to project economic growth and inflation. While inflation slowed to 2.3% in March, the central bank remains vigilant about balancing the downward pressure from a weaker economy and the upward pressure from higher costs.

Economic Implications

The Canadian economy has shown signs of slowing, with weakened consumer and business confidence. Trade tensions have disrupted recovery in the labor market, leading to a decline in employment and moderated wage growth. Additionally, consumption, residential investment, and business spending have softened, further highlighting the need for careful monetary policy decisions.

Looking Ahead

The Bank of Canada outlined two potential scenarios for the economy:

1. Limited Tariffs: Growth weakens temporarily, and inflation remains around the 2% target.

2. Prolonged Trade War: Canada could face a year-long recession, with inflation temporarily rising above 3%.

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While the future remains uncertain, the central bank is prepared to act decisively if new information points clearly in one direction. For now, Canadians can expect the policy rate to remain at 2.75% as the Bank of Canada continues to monitor the evolving economic landscape.

This announcement underscores the importance of staying informed about monetary policy and its impact on the economy. Whether you're a homeowner, investor, or business owner, understanding these decisions can help you navigate financial challenges and opportunities in the months ahead.

This week started with quite the surprise announcement by the Federal Government as it was announced that they were making the 'boldest reforms in decades' regarding Canada's mortgage system. The announcement of the two major changes was definitely surprising to everyone as it was not expected, and seemed to come out of nowhere.

The first announcement was that first time home buyers could now qualify for 30 year amortization on an insured mortgage whether they were buying a new build home or a resale property. This is a change from previously allowing only 25 year amortization on insured mortgages, while amending another change that came into effect August 1st that allowed first time home buyers to qualify for a 30 year amortization as long as they were buying a new build home.

As a reminder, an insured mortgage is when a home buyer has less than 20% to put down on a property and features a mortgage default insurance premium in order to be backed by the insurer and decrease risk to the lender.

The change to allowing 30 year amortization can accomplish two things; I will give examples shortly. The first is that it can lower monthly payments to allow first time home buyers to better afford their new property while getting used to home ownership. The increased cash flow can assist home buyers with this; however, the lower payment is offset by the fact that their will be an increased interest cost to the mortgage and less principal will be paid off during the term, resulting in a higher mortgage amount at the end of it. The second thing that the increased amortization can do is increase the amount that the potential home buyers would qualify for and be potentially be able to compete for a wider range of properties that they otherwise would not have had access to; however, a budget should be considered ahead of using the program for this purpose in order not to end up house broke.

To give an example of the lower payment potential that a 30 year amortization would represent, we will use a mortgage amount of $500,000 at todays average insured rates on a 5 year fixed mortgage. The mortgage payment using 25 year amortization would be roughly $2,800 compared to the mortgage payment of roughly $2,550 using 30 year amortization. This represents a difference of $250 per month and can help make the mortgage more affordable; however, as mentioned before, the downfall to this is that there is roughly an increase of $2,000 in interest expense and there will be roughly $16,000 less going towards principal over the term of the mortgage. This means that at the end of the term, the mortgage balance at renewal will be roughly $16,000 higher than it would have been if the 25 year amortization was used. There will likely be an increased mortgage default insurance premium to consider with the longer amortization; details on this will follow as the insurers have time to prepare for the upcoming changes.

It is important that clients consider the downfalls of using a longer amortization period and take advantage of prepayment options available to them when possible in order to ensure their mortgage is properly positioned for them in the future.

It is important to note that the 30 year amortization announcement is for first time home buyers buying a new build or resale property, as well as anybody purchasing a new build property, whether a first time home buyer or not.

The next example is in regards to how the longer amortization period can affect how much clients would qualify for; which means they may have the opportunity to find a property that is suitable for them that may not have been an option with the current 25 year amortization. If we use annual income of $120,000 with a down payment of $40,000 and 25 year amortization we would come up a maximum purchase price in the range of $530,000; however, if we increase the amortization period to 30 years, the maximum purchase price could potentially increase into the neighborhood of $565,000. While this can present the opportunity of having more options available and being able to compete a bit more, it does come with the same downfalls of increased interest expense and less principal being paid over the term. It also may present the downfall of clients potentially buying more home than they can afford and struggling to make mortgage payments along with other household expenses.

Before using the 30 year amortization as a way to increase purchase potential, the suitability of the program for the clients should be weighed heavily and all negative aspects should be considered. Just because you may be able to use the increased amortization to buy more house; doesn;t always mean you should. 

The other announcement was an even bigger surprise and represented a bigger change than anyone in or out of the industry expected. Many in the mortgage industry have been advocating for an increase in the cap to purchase prices in order to have an insured mortgage. Currently the maximum purchase price is $1,000,000 and is sufficient in most parts of the country; however, there has been a push to increase the maximum purchase price to $1,250,000. The federal government surprised everybody and announced that the cap for an insured mortgage was being increased to $1,500,000, which is the first change to this since 2012.

While this change will assist some home buyers with being able to enter the market with a lower down payment in the more expensive parts of the country, it's use may be limited as the amount of income required to qualify for such a large mortgage is out of range for most people. This may lead to an increase in co-signers being used; however, changes to tax rules regarding co-signing need to be considered first.

A mortgage over a million dollars with 30 year amortization for a first time home buyer can definitely present some big challenges, and affordability of the home buyers themselves needs to be carefully considered, even if there are co-signers willing to assist with the purchase.

The changes are proposed to take effect on December 15th of 2024 and before looking to take advantage of these programs, it is important to discuss the pros and cons with a Mortgage Broker beforehand.

Let's say you have a mortgage commitment from a lender, and prior to the closing date, rates change and come down a bit. Today, we will discuss how this change in rates can potentially benefit you and save you some money in interest expense; or how a rate change can affect how much more you could potentially qualify for if you have a pre-approval with a rate hold.

Rates are rarely static with any lender and can change weekly or even daily. When you have a mortgage commitment, you are protected from rate increases as long as there are no material changes in the application prior to the closing date; however, if rates come down before closing, you may be able to take advantage of this new lower rate.

It is important to discuss any potential rate adjustments with your Mortgage Broker since every lender is different, and some allow for multiple rate adjustments on a file, and some allow only one or even none. It is also important to consider how close to closing the rate adjustment opportunity is, as if it is too close to the closing date, the lender may not have time to make the adjustment and issue new documentation for the lawyer. When dealing with a lender that only allows one rate adjustment, the decision of when to request it is to be made strategically to limit the possibility of adjusting the rate down and then watching them fall further without the ability to make another change.

Even though rates are always changing, it should not be expected to see a drastic change in rates between when you receive the mortgage commitment and the closing date; however, even a small change can make a difference in not only your interest expense over the term of your mortgage; but, also the amount of the monthly payment, which will increase your cash flow with each payment.

For our example, we will use a $500,000 mortgage amount with a 5 year fixed rate that is amortized over 25 years. The original interest rate on the mortgage commitment is 4.99% and a few weeks before closing the lender reduces their rate to 4.89% on the same term and mortgage product. Your Mortgage Broker would check with the lender if a rate adjustment, or float down, as it is known in the industry, is available and would present the following to you to see if you would like to have the rate adjustment applied.

The rate reduction would result in a payment that would be $28 lower per month and would not only save you $2,400 over the 5 year term; but, would also result in $700 more principal being paid, for a net savings of $3,100. Not to bad for a simple request from the lender.

When it comes to how a rate decrease affects a pre-approval, it isn't that it changes the pre-approval itself since the rate on the pre-approval certificate is held and in effect for 4 months; it can however change the amount that you would qualify for if you find and secure a property with an accepted offer to purchase while the lower rate is active. This can be helpful if your qualifying amount on your pre-approval is a bit lower than what is required to purchase a property in the location you are looking at; sometimes a couple extra thousand dollars is enough to get an accepted offer.

For example, let's say you have a pre-approval for a maximum purchase price of $700,000 and a rate of 4.99% held and rates come down to 4.79% while you are shopping for a property. The purchase amount that you would potentially be able to qualify for with this new rate would be $711,000, or an increase of $11,000. It is important to note that you must ensure to discuss this with your Mortgage Broker so that they can adjust qualifying based on actual amounts for the property; and of course, even with a pre-approval, a condition of financing is a must in order to protect yourself.