Mortgage Rates in 2025: Where Are They Headed?
As we step into 2025, mortgage rates continue to be a focal point for homeowners, buyers, and investors alike. With evolving economic conditions and shifting global trade policies, many are left wondering what’s next for interest rates in Canada. Here’s an in-depth look at the factors shaping the mortgage landscape this year.
Bank of Canada’s Rate Cut: A Cautious Start
On January 29, 2025, the Bank of Canada (BoC) initiated the year with a modest 0.25% rate cut, bringing its policy rate down to 3.0%. As a result, most bank prime rates have decreased from 5.45% to 5.20%. While this move signals the BoC’s intent to ease monetary policy, uncertainties remain.
Tariff Pressures and Economic Volatility
One of the biggest challenges looming over the Canadian economy is the potential impact of U.S. trade policies. With the newly re-elected U.S. administration considering a 25% tariff on Canadian goods, the BoC faces new inflationary risks. If these tariffs are implemented, they could slow economic growth and complicate the central bank’s rate-cutting plans.
Crown Funding’s Rate Outlook
At Crown Funding, we’ve always been committed to securing the best mortgage rates for our clients. Given the current economic climate, we anticipate further BoC rate cuts in 2025, but their extent will depend on several key factors:
- Inflation Trends: December’s headline inflation dipped to 1.8%, but core inflation remains above the BoC’s preferred range. Continued inflationary pressures could limit rate reductions.
- Labour Market Dynamics: Canada’s job market remains resilient, with unemployment slightly decreasing to 6.6% in January. Wage inflation has also eased, signaling potential room for further rate cuts.
- GDP Growth: Economic growth has been sluggish, with a 0.2% contraction in November 2024. If trade barriers increase, GDP could face further downward pressure, necessitating additional rate cuts.
March 12: The Next BoC Rate Decision
Market analysts currently place a 54% probability on another BoC rate cut in March. However, this could change if the labour market strengthens or inflation picks up unexpectedly. If tariffs are implemented, the likelihood of deeper rate cuts will increase.
Housing Market Considerations
Despite lower interest rates, housing activity has remained stable, with national sales up 19% year-over-year. However, uncertainty surrounding tariffs and economic volatility may cause some buyers and sellers to hesitate. If demand surges, it could counteract the cooling effects of rate reductions on affordability.
Impact of U.S. Economic Policies
Canada’s economy is closely linked to the U.S., making American policy decisions crucial in shaping our interest rate trajectory. Key concerns include:
- Accelerated U.S. economic growth potentially driving inflation higher.
- Trade disputes leading to economic uncertainty and currency depreciation.
- Widening interest rate divergence between the BoC and the U.S. Federal Reserve.
What’s Next for Mortgage Rates?
Assuming no major trade disruptions, we expect the BoC to cut rates by another 0.50% by the end of 2025, bringing its policy rate to 2.50%. However, if tariffs lead to an economic downturn, deeper rate cuts (potentially 1.0% or more) may be necessary to stabilize the economy.
As we navigate these economic headwinds, Crown Funding remains dedicated to providing our clients with competitive mortgage solutions. Stay informed and consult with our experts to make the best financial decisions in this evolving landscape.
For more insights on how trade policies could affect mortgage rates, stay tuned to our latest updates.