Updated semi-monthly on the 1st weekday of the month and the first weekday on or after the 15th.
Last Updated on: Jan 13, 2024.
Table of Contents
- What Rates are we Talking About in this Forecast
- Where are Rates Today
- The Big 6 Banks’ Opinion
- Top Economists’ Opinion
What Rates are We Talking About in this Forcast?
This post will mainly be discussing where the Bank of Canada’s policy rate is going. This is an important factor as it makes up the majority of the influence on variable/adjustable rate mortgages.
It also has secondary effects on fixed rate mortgages. These secondary effects exist because fixed rate mortgages are comparable investments to the bank as similar term bond yields. These bonds are anticipating where the Bank of Canada’s policy rate is going.
It’s then important to understand the Bank of Canada’s policy rate, where it’s going, and why it’s going there, if you want to understand where mortgage rates are going as well.
We’ll first break down what the following rates are, and what their relationship is:
- Bank of Canada Policy Rate
- Prime Lending Rates
- Variable Rate
- Adjustable Rate
- Fixed Rate
Lastly, to simplify things, all of the actual lender rates discussed below will be for their standard, insured mortgages with 25 year amortization.
Bank of Canada Policy Rate (Overnight Rate)
Let’s start with the foundation. The Bank of Canada sets what’s called the “policy rate” or “overnight rate.” This is the interest rate at which major banks lend and borrow money overnight. It’s the core benchmark for almost all other interest rates in Canada. When the BoC tweaks this rate, it sends ripples across the financial system, impacting everything from mortgages to lines of credit.
Prime Lending Rate
Now, let’s talk about the prime rate—this is the one you probably hear about most often. It’s the interest rate banks offer to their best clients, the ones they’re most confident will pay back their loans. The prime rate is directly tied to the Bank of Canada’s policy rate. If the BoC raises or lowers its rate, banks almost always follow suit with their prime rates.
Variable Rate Mortgages
Here’s where things get personal for homeowners. Variable-rate mortgages are tied directly to the prime rate. When the prime rate moves, so does your interest rate—and potentially your payments. It’s a dynamic setup: your costs can fluctuate depending on how the economy (and the BoC) moves.
Adjustable-Rate Mortgages (ARMs)
These often get lumped together with variable-rate mortgages, but let’s break them down:
- Adjustable-Rate Mortgages: Both your interest rate and monthly payment adjust as the prime rate changes. If rates go up, your payment rises immediately. If rates drop, you’ll feel the relief right away.
- Fixed-Payment Variable-Rate Mortgages: Your interest rate still adjusts with the prime rate, but your monthly payment stays the same—at least initially. What changes is how much of your payment goes toward interest versus the principal. If rates climb too high, you could hit a “trigger point,” where your payment doesn’t even cover the interest, which might force an increase or lump-sum payment.
Fixed-Rate Mortgages
For those who prefer certainty, fixed-rate mortgages are the go-to. Your interest rate stays locked for the term—whether that’s 1 year, 5 years, or even 10 years. These rates are tied to the bond market, not the prime rate. Essentially, lenders look at government bond yields for terms matching your mortgage, then add a bit extra to cover their risks and costs.
How It All Connects
Fixed Rates and Market Trends:
Fixed rates follow a different path. They’re shaped by the bond market and economic conditions, not the BoC’s overnight rate. While they stay steady for the term, the rate you’re offered for a new fixed mortgage depends on the current bond yields and market forecasts.
The BoC’s Role:
When the Bank of Canada changes its policy rate, banks adjust their prime rates. For example, if the BoC rate is 3.75%, prime might land at 5.95%. That’s the baseline for variable and adjustable-rate mortgages.
Variable and Adjustable Rates:
If the prime rate climbs, your interest costs go up. If it drops, you save. It’s that simple.
Where are Mortgage Rates Today?
Here are some of the key rates, and where they are today:
- Bank of Canada Policy Rate: 3.25%
- Prime Lending Rate Premium: 2.20% (except TD, who’s premium is 2.35%)
Big 6 Bank Current Rates
| Prime Lending Rate | 5 Year Variable or Adjustable Discount | 5 Year Variable or Adjustable Rate | 5 Year Fixed Rate | |
|---|---|---|---|---|
| BMO | 5.45% | -0.50% | 4.95% | 4.59% |
| CIBC | 5.45% | -0.80% | 4.65% | 4.59% |
| National Bank | 5.45% | -0.50% | 4.95% | 4.84% |
| RBC | 5.45% | -0.80% | 4.65% | 4.59% |
| Scotiabank | 5.45% | -0.80% | 4.65% | 4.54% |
| TD Canada Trust | 5.60% | -0.61% | 4.99% | 4.84% |
The Big 6 Banks’ Opinion: Will Mortgage Rates Go Up or Down?
The big banks spend a lot of money on researching and forecasting where rates will go. They have entire departments dedicated to this.
Interestingly, some of the data is publicized so we can get a glimpse of the results of their hard work.
What you’ll see below is a chart with their prediction of the Bank of Canada Policy Rate. I’ve then extrapolated the data by adding a premium to get an estimate of where they think their prime lending rate will be. Finally, I’ve made assumptions about their publicized variable or adjustable rate discount (or premium) based on publicized rate sheets.
Assumptions:
| Prime Lending Rate Premium (%) | Variable or Adjustable Discount (%) | |
|---|---|---|
| BMO | 2.20% | -0.50 |
| CIBC | 2.20% | -0.80 |
| National Bank | 2.20% | -0.50 |
| RBC | 2.20% | -0.80 |
| Scotiabank | 2.20% | -0.80 |
| TD Canada Trust | 2.35% | -0.61 |
BoC Policy Rate Forecasts
| 2025 – End of 1st Quarter (%) | 2025 – End of 2nd Quarter (%) | 2025 – End of 3rd Quarter (%) | 2025 – End of 4th Quarter (%) | |
|---|---|---|---|---|
| BMO | 3.00% | 2.75% | 2.50% | 2.50% |
| CIBC | 2.75% | 2.25% | 2.25% | 2.25% |
| National Bank | 2.75% | 2.50% | 2.25% | 2.25% |
| RBC | 2.75% | 2.25% | 2.00% | 2.00% |
| Scotiabank | 3.00% | 3.00% | 3.00% | 3.00% |
| TD Canada Trust | 3.00% | 2.75% | 2.50% | 2.25% |
Mortgage Rate Forecasts
Mortgage Rate Forecasts for Variable and Adjustable Rate Mortgages
| 2025 – End of 1st Quarter (%) | 2025 – End of 2nd Quarter (%) | 2025 – End of 3rd Quarter (%) | 2025 – End of 4th Quarter (5) | |
|---|---|---|---|---|
| BMO | 4.70% | 4.45% | 4.20% | 4.20% |
| CIBC | 4.15% | 3.65% | 3.65% | 3.65% |
| National Bank | 4.45% | 4.20% | 3.95% | 3.95% |
| RBC | 4.15% | 3.65% | 3.40% | 3.40% |
| Scotiabank | 4.60% | 4.60% | 4.60% | 4.60% |
| TD Canada Trust | 4.74% | 4.49% | 4.24% | 3.99% |
Top Economists’ Opinion: Mortgage Rate Predictions by the Bank of Canada’s Most Trusted Economists
Every quarter the Bank of Canada asks their most trusted economists where they think the economy is heading.
The latest survey was completed: Nov 4, 2024 and so this data may be lagging significantly.
The below data is based on the “Median” of the surveyed results – this means it’s based on the most.
BoC Policy Rate and Mortgage Rate Forecasts
| Policy Rate Forecast | Prime Lending Rate (Assuming a Premium of 2.20%) | Variable Mortgage Rate (Assuming a Discount of 0.80%) | |
|---|---|---|---|
| January | 3.50% | 5.50% | 4.70% |
| March | 3.25% | 5.45% | 4.65% |
| April | 3.00% | 5.00% | 4.20% |
| June | 2.75% | 4.95% | 4.15% |
| Q3 (September) | 2.75% | 4.95% | 4.15% |
| Q4 (December) | 2.75% | 4.95% | 4.15% |