Canadians can expect lower rates, deals next year

With inflation back to the Bank of Canada’s two per cent target and rate cuts expected to continue through next year, Canadians should anticipate lower mortgage rates and better deals going into 2025, experts say.

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Canadians have been facing higher interest rates over the last few years, after the Bank of Canada hiked its policy rate in the wake of soaring inflation. Since June, however, the central bank has cut its benchmark rate by 175 basis points over five consecutive decisions, including two jumbo 50 basis point cuts in October and December. The Bank’s policy rate now sits at 3.25 per cent. Economists expect that the Bank of Canada will continue to reduce interest rates next year, albeit at a “more gradual” pace.

With interest rates on the way down, 2025 could see a further resurgence in interest for the variable-rate mortgage.

“We can safely expect that we’ll see some downward movement on the variable-rate side, whereas things are going to be a little bit stickier on the fixed-rate state,” Penelope Graham, mortgage rate expert at Ratehub.ca, said in an interview with Yahoo Finance Canada. Variable-rate mortgages move with the prime lending rate, which is affected by changes to the BoC’s policy rate. Fixed mortgage rates are affected by the bond market, which has seen yields remain “very, very sticky”, Graham notes. Since Oct. 1, yields for the benchmark 5-year bond have been in the range of 2.74 to 3.31 per cent.

“There hasn’t been any major movement in fixed mortgage rates in the past couple of months, and we don’t expect to see that (change) probably within the first half of next year, unless something major happens that really reassures markets,” Graham said.

“But with the way things are currently looking, there’s nothing on the radar that might suggest that.”

Victor Tran, a Toronto-based mortgage broker and Ratesdotca mortgage and real estate expert, says interest in variable rates started to pick up in the summer as the central bank began slashing its benchmark rate. With variable rates sitting slightly higher than fixed rates, he says homeowners are “starting to see that light at the end of the tunnel” and willing to deal with short-term pain of that slightly higher rate.

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“A lot of customers are saying, let’s deal with a slightly higher variable rate and slightly higher payment for now. But give it another three or four months, we could be ahead,” Tran said in an interview with Yahoo Finance Canada.

Graham and Tran both expect variable-rate mortgages to fall below fixed rates in 2025. But fixed rates are still popular among mortgage holders. Tran says he still expects three-year fixed terms to remain a top choice after surging in popularity the last few years.

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