Bank of Canada Holds Rate at 2.25%: What This Means for Mortgages in 2026

Bank of Canada interest rate 2026

On December 10, 2025, the Bank of Canada (BoC) announced its decision to hold the policy interest rate at 2.25%. This move follows a year of cooling inflation and stabilizing growth, signaling a definitive end to the aggressive rate-hiking cycle that dominated previous years.

For Canadian homeowners and prospective buyers, the “2026 Mortgage Landscape” is shaping up to be one of cautious stability. While the era of “emergency low” rates is behind us, the predictability of a 2.25% benchmark provides a clearer path for financial planning—especially for the millions of Canadians facing the “renewal wall” in the coming months.

Why the Bank of Canada Chose to Hold

The BoC’s decision wasn’t made in a vacuum. Several key economic indicators led to this 2.25% steady state:

  1. Inflation on Target: As of late 2025, inflation has settled near the 2.0% target. The BoC is wary of cutting further and risking a rebound in consumer spending that could push prices back up.
  2. GDP Growth: The third quarter of 2025 saw a surprising 2.6% annualized growth, suggesting the economy isn’t in need of further “stimulus” via lower rates.
  3. The Labor Market: Unemployment remains stable at roughly 6.5%. While the market isn’t booming, it isn’t shedding jobs at a rate that would force the BoC to panic-cut rates.

By holding at 2.25%, the BoC is threading the needle: keeping the economy from overheating while ensuring debt-heavy households aren’t pushed over the edge.

The Impact on Your Mortgage in 2026

Variable-Rate Mortgages: The New Normal

If you are currently in a variable-rate mortgage, the hold is a sigh of relief. Your payments will remain steady as we enter the first half of 2026.

  • Prime Rate Stability: With the policy rate at 2.25%, the Prime Rate at most major lenders is currently 4.45%.
  • Looking Ahead: Most economists predict the BoC will remain “data-dependent.” If the economy cools faster than expected in mid-2026, we might see a final “insurance cut” to 2.0%. Conversely, if inflation ticks up, 2.25% may be the floor for the foreseeable future.

Fixed-Rate Mortgages: Watching the Bond Market

Fixed rates are a different beast. They are driven by the 5-year Government of Canada bond yields, which often move before the Bank of Canada makes an announcement.

  • The Yield Climb: Even with the BoC holding steady, bond yields have recently hovered around 3.1%.
  • Current Offers: This has kept five-year fixed mortgage rates in the 3.95% to 4.25% range.
  • Strategy: For those buying in 2026, don’t expect fixed rates to drop significantly. The market has already “priced in” the current low rates.

The 2026 Renewal Shock: A Reality Check

The biggest story of 2026 isn’t new buyers—it’s the renewal wave. Roughly 60% of all Canadian mortgages are renewing between 2025 and 2026.

  • The Math: If you took out a mortgage in 2021 at 1.99% or 2.49%, renewing at a 2026 rate of 4.49% is a massive jump.
  • Monthly Impact: On a $500,000 balance, your monthly payment could increase by $550 to $700.

Navigating the 2026 Market: 3 Key Strategies

1. Stress Test Your Own Budget

Don’t wait for your renewal letter to arrive. Use an online calculator to see what your payment would look like at 4.5%. If that number makes you sweat, start adjusting your savings or debt-repayment strategy now.

2. Consider the “Short-Fix”

In a 2.25% environment, locking into a 5-year fixed rate might feel restrictive. Many 2026 borrowers are opting for 2- or 3-year fixed terms. This allows you to secure a rate around 4% today while leaving the door open to move into a lower-rate environment if the BoC decides to cut further in late 2027 or 2028.

3. Early Renewal and Porting

If you’re planning to move in 2026, look at your “porting” options. Some lenders allow you to take your current (likely lower) rate with you to a new property, which can save you thousands compared to breaking the mortgage and starting fresh at today’s rates.

The Bottom Line for 2026

The Bank of Canada’s decision to hold at 2.25% brings a sense of “boring” predictability back to the housing market. For most, “boring” is exactly what is needed after years of volatility. While the “renewal shock” is real, the stability of the overnight rate means you can plan your 2026 finances without the fear of a surprise 0.50% hike around the corner.

2026 Canada Mortgage Rate Forecast FAQs

Contact us If you are feeling the “payment shock” or need to discuss your renewal strategy.

How will the 2.25% hold affect my monthly payments?

If you have an adjustable-rate mortgage (variable), your payments will stay the same. if you have a fixed-rate mortgage, nothing changes until your renewal date. However, those renewing in 2026 should prepare for higher payments than their previous term.

Are interest rates expected to go down further in 2026?

Most analysts believe we are at or near the “bottom” of the rate cycle. While a small 0.25% cut is possible mid-year, the general consensus is a flat environment followed by potential modest increases in late 2026 or 2027.

Should I choose a fixed or variable rate in 2026?

This depends on your risk tolerance. Variable rates currently offer lower entry points (~3.45%), but fixed rates (~3.89%+) provide protection against the “hawkish” turn some economists predict for the second half of 2026.

Why are fixed rates going up if the Bank of Canada is holding?

Fixed rates follow the bond market. Recent strong economic data has caused bond yields to rise as investors bet that the Bank of Canada won’t need to cut rates further to support the economy.

What is the “renewal shock” expected for 2026?

Homeowners coming off 5-year fixed terms from 2021 (often below 2.5%) will face rates near 4.5%. This can result in a 15–20% jump in monthly costs, making early planning essential.

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