Umair Zafar

The Bank of Canada today reduced its target for the overnight rate by 25 basis points to 2.5%, with the Bank Rate at 2.75% and the deposit rate at 2.45%.

After remaining resilient to sharply higher US tariffs and ongoing uncertainty, global economic growth is showing signs of slowing. In the United States, business investment has been strong but consumers are cautious and employment gains have slowed. US inflation has picked up in recent months as businesses appear to be passing on some tariff costs to consumer prices. Growth in the euro area has moderated as US tariffs affect trade. China's economy held up in the first half of the year but growth appears to be softening as investment weakens. Global oil prices are close to their levels assumed in the July Monetary Policy Report (MPR). Financial conditions have eased further, with higher equity prices and lower bond yields. Canada's exchange rate has been stable relative to the US dollar.

Canada's GDP declined by about 1½% in the second quarter, as expected, with tariffs and trade uncertainty weighing heavily on economic activity. Exports fell by 27% in the second quarter, a sharp reversal from first-quarter gains when companies were rushing orders to get ahead of tariffs. Business investment also declined in the second quarter. Consumption and housing activity both grew at a healthy pace. In the months ahead, slow population growth and the weakness in the labour market will likely weigh on household spending.

Employment has declined in the past two months since the Bank's July MPR was published. Job losses have largely been concentrated in trade-sensitive sectors, while employment growth in the rest of the economy has slowed, reflecting weak hiring intentions. The unemployment rate has moved up since March, hitting 7.1% in August, and wage growth has continued to ease.

CPI inflation was 1.9% in August, the same as at the time of the July MPR. Excluding taxes, inflation was 2.4%. Preferred measures of core inflation have been around 3% in recent months, but on a monthly basis the upward momentum seen earlier this year has dissipated. A broader range of indicators, including alternative measures of core inflation and the distribution of price changes across CPI components, continue to suggest underlying inflation is running around 2½%. The federal government's recent decision to remove most retaliatory tariffs on imported goods from the US will mean less upward pressure on the prices of these goods going forward.

With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks. Looking ahead, the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties. Governing Council will be assessing how exports evolve in the face of US tariffs and changing trade relationships; how much this spills over into business investment, employment, and household spending; how the cost effects of trade disruptions and reconfigured supply chains are passed on to consumer prices; and how inflation expectations evolve.

The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled.

Source: Bank of Canada Website

Canadian Monthly Housing Starts and Other Construction Data Tables - July 2025

At our mortgage brokerage, we make it a priority to follow the Canada Mortgage and Housing Corporation's (CMHC) monthly housing starts data. These figures aren't just numbers, they reflect the health of Canada's housing market and give homebuyers, sellers, and investors valuable insight into supply, demand, and future opportunities.

The July 2025 report shows notable shifts across the country, and we're here to break down what it means for you.

Key Highlights - July 2025

• Six-Month Trend (SAAR)
  

  The six-month moving average of the seasonally adjusted annual rate (SAAR) of total housing starts climbed 3.7% in July to 263,088 units. This upward momentum highlights the resiliency of Canada's construction sector.

• Monthly Seasonally Adjusted Annual Rate (SAAR)
  

  The standalone SAAR rose 4% from 283,523 in June to 294,085 units in July.

  • Urban centres (pop. 10,000+) saw a 5% increase to 273,618 units.

  • Rural starts accounted for 20,467 units.

• Year-Over-Year (YoY) Actual Starts (Centres, pop. 10K+)
  

  Canada recorded 23,464 actual housing starts in July, a 4% increase from 22,610 a year ago. Year-to-date, the total stands at 137,875 starts, also up 4% compared to 2024.

• Regional Highlights
  

  • Montréal: Surged with a 212% YoY increase, largely driven by multi-unit projects.

  • Vancouver: Posted a solid 24% YoY gain, reflecting continued multi-unit demand.

  • Toronto: Fell sharply with a 69% YoY decline, showing weakness in both single-detached and multi-unit segments.

Broader Canadian Market Context

Housing starts continue to show strength across Canada, with multi-unit activity leading the way. Markets such as Québec and the Maritimes are seeing outsized growth.

Demand for rental housing, demographic shifts, and earlier permit approvals are fueling these numbers. However, slowing population growth and higher vacancy rates could temper activity in 2026.

What This Means for Our Clients

• For Buyers and Investors: In markets like Montréal and Vancouver, new supply means more opportunities to purchase condos, townhomes, and investment properties. Toronto's dip in starts, however, signals tighter supply, which could keep prices elevated.

• For Sellers: Sellers in growth regions may face more competition from new builds, while Toronto sellers may continue to benefit from limited supply.

• For Developers and Builders: Strong multi-unit activity presents opportunities for construction financing. Still, every region carries unique risks, so it's important to structure financing carefully.

• For Families Planning Ahead: Keep in mind that today's starts will take months, if not years, to translate into completed homes. For clients considering pre-construction purchases or development mortgages, timing is critical.

Quick Snapshot - July 2025

What's Next?

The July 2025 CMHC housing starts data shows Canada's construction sector continues to adapt to housing demand, particularly in the multi-unit space. Montréal and Vancouver are thriving with strong growth, while Toronto lags behind.

For our clients, these trends reinforce the importance of local expertise. Whether you're buying, selling, investing, or building, our team is here to guide you with mortgage strategies that align with Canada's evolving housing landscape.

Reference: ref: CMHC Website

Did You Know?

Did you know that Canada's latest inflation figure has cooled to 1.7% according to Statistics Canada? For everyday Canadians, this is more than a headline. It can point to lower borrowing costs, steadier home prices, and fresh opportunities to either buy your first home or restructure an existing mortgage to save money.

Attention: Why Inflation Matters for Homebuyers and Homeowners

When people hear "inflation," they often think about grocery bills or the price of gas. Inflation also shapes mortgage rates. Here is the simple link:

• When inflation runs hot, the Bank of Canada raises interest rates to cool spending, and borrowing gets more expensive.
• When inflation cools, as it has now to 1.7 percent, mortgage rates tend to ease over time, which can improve affordability.

This shift signals an opening for Canadians who have been waiting. If you have been on the sidelines, the window to buy or to refinance may be wider than it has been in years.

Interest: How Lower Inflation Creates New Possibilities

With inflation below 2 percent, the Bank of Canada has more room to hold or trim rates in upcoming decisions. That matters because:

• First-time buyers: Lower rates can reduce monthly payments, help you qualify for more, or simply give you breathing room.
• Current homeowners: If your renewal is coming up, you may be able to lock in a lower rate than what was available last year.
• Upsizers and investors: Improved affordability can make it easier to move up or add a property.

Illustrative example: On a $450,000 mortgage, a 1 percent lower rate can trim payments by roughly $250 per month depending on amortization and term. Over five years, that can approach $15,000 in potential savings. This is a simplified example, and actual results depend on your exact mortgage details.

Desire: Why Acting Now Can Pay Off

Opportunities like this rarely last. In many markets, prices have stabilized. When rates drift lower, demand often picks up, which can nudge prices higher again. Getting organized now helps you stay ahead of the next wave of buyers.

This is where a dedicated mortgage team helps. We compare lenders, evaluate products, and build a clear strategy for your goals. That might mean a shorter term to keep flexibility, a fixed rate for payment certainty, or a refinance that consolidates higher interest debt. Small adjustments can lead to meaningful savings and less stress.

Clients often tell us they thought refinancing would be complicated or that they would not qualify for better terms. Once we review the numbers, we frequently uncover a path that reduces payments or shortens the time to become mortgage-free.

Action: Three Steps To Take Today

1. Review your current mortgage. If renewal is within the next 12 to 18 months, start now. Many lenders allow a rate hold well in advance.
2. Get pre-approved if buying. Locking in a rate protects you if rates tick up while you shop.
3. Speak with a trusted mortgage professional. Every situation is unique. A quick strategy session can confirm if you are leaving money on the table.

Stats Snapshot: Inflation, Rates, and Housing

• Inflation: Statistics Canada reports the July 2025 Consumer Price Index at 1.7% year over year.
• BoC perspective on renewals: The Bank of Canada notes that many households renewing in 2025 and 2026 will still see payment increases versus 2024 levels, although pressure eases as rates drift lower.
• Market activity: CREA reported July 2025 home sales up on a monthly basis with the national benchmark price holding steady.
• Example retail rates: Major bank special offers for 5-year fixed are posting in the high 4s, subject to borrower profile and conditions.

These data points suggest affordability conditions are improving while the overall stress on renewals varies by household. Verifying your specific numbers is the best next step.

Top 10 FAQs About Inflation and Mortgages in Canada

1) What does 1.7 percent inflation mean for my mortgage?

Lower inflation signals less upward pressure on interest rates. It can support stable or lower mortgage rates over time, which benefits new buyers and those exploring a refinance.

2) Will mortgage rates drop further if inflation stays low?

There is no guarantee. Historically, cooler inflation gives the Bank of Canada more flexibility to trim policy rates if broader data supports it. Market expectations will shift as fresh data arrives.

3) Should I choose a fixed or variable mortgage right now?

It depends on your tolerance for payment changes, your timeline, and your budget. Fixed provides certainty. Variable can benefit if rates decline. We model both options to show total interest, payment paths, and renewal scenarios.

4) Is now a good time to refinance?

If you are holding a rate that is materially above current offers, a refinance can reduce interest costs or consolidate higher interest debt. The math must include penalties, legal costs, and your timeline. We run the full comparison for you.

5) How does low inflation affect home prices?

Lower rates often increase buyer demand, which can add price pressure. If you find a home that fits your budget and needs, acting sooner can help you secure value before momentum builds.

6) I renewed last year at a higher rate, do I have options?

Possibly. If the projected savings outweigh penalties, a mid-term refinance might make sense. Lender policies vary. A quick review can confirm.

7) How does inflation tie into the mortgage stress test?

The stress test uses qualifying rates that move with market conditions. If rates ease, qualifying can become easier at the margin. Your income, debts, and amortization remain key factors.

8) Are first-time buyers benefiting the most?

Many first-time buyers gain from lower monthly payments and rate holds while they shop. Good preparation still matters, including down payment planning and a clear budget.

9) Should I wait for inflation to fall even further?

There is always a trade-off. Waiting for a slightly lower rate can mean competing with more buyers later. Locking in a rate hold gives you protection and time to shop.

10) How can a mortgage broker help right now?

We compare multiple lenders, negotiate terms, and tailor a structure that fits your goals. You get clarity, speed, and a plan that evolves with market data.

Closing Thoughts

Inflation at 1.7 percent is a welcome sign. For Canadians, it can mean fresh pathways to buy a home or to cut borrowing costs through a refinance. Conditions are improving, yet markets move quickly. A short conversation can confirm if now is the right moment for you to act with confidence.

Is the Mortgage Stress Test on the Way Out? How OSFI's New Loan-to-Income Rules Could Reshape Borrowing in 2025-26

Canadian borrowers have spent the past seven years living with the mortgage "stress test," a rule that forces buyers and refinancers to qualify at the greater of 5.25 percent or two percentage points above their contract rate. That buffer protected households when rates were cheap, but in today's higher-rate world it is under fresh scrutiny. In June, the Office of the Superintendent of Financial Institutions, OSFI, signalled it could replace that test with a loan-to-income, LTI, framework capped at 4.5 times a borrower's gross income. The change could land as early as 2026, and every Canadian with a mortgage decision on the horizon needs to understand the potential fallout.

1. From Interest-Rate Buffer to Income-Based Cap

Under the proposed rules lenders would monitor the share of new uninsured mortgages that exceed the 4.5× income cap, rather than forcing every applicant to clear a universal stress-test rate. The cap already applies at the portfolio level for federally regulated lenders beginning in fiscal 2025, giving OSFI real-world data before it makes a final decision on whether to scrap the stress test entirely.

OSFI says it will evaluate the framework until at least January 2026, then decide whether the LTI limit will stand alone or work alongside a scaled-back stress test. That timeline means borrowers shopping for pre-approvals in late 2025 could become the first to feel the impact.

2. A Perfect Storm of Renewals and Rate Plateau

The Bank of Canada held its overnight rate steady at 2.75 percent on July 30, 2025, its second consecutive hold. While stability offers short-term relief, a massive renewal wave means roughly 60 percent of all outstanding mortgages will reset between now and the end of 2026, most of them at higher rates.

The central bank's own modelling shows that about 60 percent of those renewing will still see payment increases, averaging 10 percent in 2025 and 6 percent in 2026 even if rates remain flat. In other words, qualification rules and payment affordability are converging issues for many households.

3. Who Stands to Benefit, and Who Could Be Squeezed?

• First-time buyers: High-income earners with modest down payments may qualify for larger mortgages under a pure LTI test because their household income, rather than the stress-test rate, becomes the ceiling.
• Move-up buyers in expensive markets: Households relying on two strong incomes could find that the 4.5× cap still limits purchasing power, especially in Greater Vancouver and the GTA, where median price-to-income ratios already exceed 10×.
• Renewers with growing salaries: If OSFI moves to LTI only, borrowers whose income has risen since 2020 could refinance into competitive rates without clearing an artificially high qualifying rate.
• Self-employed borrowers: Stated-income files could face extra scrutiny because actual taxable income, not gross revenue, will be the LTI denominator.

4. Stress Test vs. LTI: A Quick Scenario

Consider a couple earning a combined $150,000, seeking a five-year fixed mortgage at 4.69 percent with a 25-year amortization and 20 percent down.

• Current stress test: Must qualify at the greater of 5.25 percent or 6.69 percent. At 6.69 percent the maximum mortgage is roughly $560,000, translating to a purchase price near $700,000.
• Proposed LTI at 4.5×: Maximum mortgage is $675,000 (4.5 × $150,000), allowing a purchase price closer to $845,000 with the same down payment.

For borrowers on the cusp of qualifying, the difference can be the gap between condo and townhouse, or townhouse and detached home. Note, however, that lenders must keep their overall portfolio within OSFI's limits, so not every applicant will receive the higher ceiling.

5. Could Home Prices Rise or Fall?

Economists are split. Some argue that income-based caps in markets like the United Kingdom cooled demand and discouraged speculative bidding, implying price softness is possible. Others warn that if the LTI becomes the sole test and rates decline modestly, latent demand from sidelined buyers could spark renewed price pressure in mid-2026.

In the short term, expect a flurry of purchases before any transition date, as borrowers rush to lock in stress-test-based approvals. Similar surges occurred in 2016 before insured- versus uninsured-loan rule changes and again in 2018 when OSFI first introduced the stress test for conventional mortgages.

6. What You Should Do Between Now and 2026

• Run an income stress test today: Calculate your current LTI and debt-service ratios to see how close you already are to 4.5× income.
• Secure early rate holds: Lenders can typically lock a rate for 90–120 days. Doing so now protects you if rates slip lower but the stress-test rule remains.
• Consider a refinance check-up: If you renew in 2025-26, gather current pay stubs, T1s, and a property valuation so your broker can model both stress-test and LTI scenarios the moment rules change.
• Boost your credit buffers: Pay down credit cards and lines of credit. A lower total debt service ratio gives you more wiggle room under either framework.
• Stay informed: OSFI's next formal update is expected after its December 2025 meetings, with a possible implementation date in early 2026. Revisit your pre-approval strategy once new guidance is published.

7. Our Commitment to You

Navigating regulatory change is exactly where an experienced broker adds value. We monitor OSFI updates, Bank of Canada releases, and lender policy memos daily so you do not have to. When the rules shift, our team will re-underwrite your file under both regimes and advise on timing your application for maximum borrowing power, or maximum safety, depending on your goals.

Whether you are buying your first home, moving up, or facing renewal anxiety, reach out for a personalized assessment. We will map out best-case, base-case, and worst-case payment projections, factoring in potential LTI caps, future rate moves, and your household budget.

Bottom Line

The mortgage stress test is not gone yet, but Canada's shift toward an income-based framework is well under way. The window to optimize your borrowing strategy under the current rules is measured in months, not years. Proactive planning today can save thousands in interest tomorrow and put you in a stronger negotiating position when OSFI makes its final call in 2026.

Ready to see where you stand? Book a discovery call or apply online for a no-obligation pre-approval and stress-test check-up. Together, we will make sure policy changes work for you, not against you.

The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%.

While some elements of US trade policy have started to become more concrete in recent weeks, trade negotiations are fluid, threats of new sectoral tariffs continue, and US trade actions remain unpredictable. Against this backdrop, the July Monetary Policy Report (MPR) does not present conventional base case projections for GDP growth and inflation in Canada and globally. Instead, it presents a current tariff scenario based on tariffs in place or agreed as of July 27, and two alternative scenarios-one with an escalation and another with a de-escalation of tariffs.

While US tariffs have created volatility in global trade, the global economy has been reasonably resilient. In the United States, the pace of growth moderated in the first half of 2025, but the labour market has remained solid. US CPI inflation ticked up in June with some evidence that tariffs are starting to be passed on to consumer prices. The euro area economy grew modestly in the first half of the year. In China, the decline in exports to the United States has been largely offset by an increase in exports to the rest of the world. Global oil prices are close to their levels in April despite some volatility. Global equity markets have risen, and corporate credit spreads have narrowed. Longer-term government bond yields have moved up. Canada's exchange rate has appreciated against a broadly weaker US dollar.

The current tariff scenario has global growth slowing modestly to around 2½% by the end of 2025 before returning to around 3% over 2026 and 2027.

In Canada, US tariffs are disrupting trade but overall, the economy is showing some resilience so far. After robust growth in the first quarter of 2025 due to a pull-forward in exports to get ahead of tariffs, GDP likely declined by about 1.5% in the second quarter. This contraction is mostly due to a sharp reversal in exports following the pull-forward, as well as lower US demand for Canadian goods due to tariffs. Growth in business and household spending is being restrained by uncertainty. Labour market conditions have weakened in sectors affected by trade, but employment has held up in other parts of the economy. The unemployment rate has moved up gradually since the beginning of the year to 6.9% in June and wage growth has continued to ease. A number of economic indicators suggest excess supply in the economy has increased since January.

In the current tariff scenario, after contracting in the second quarter, GDP growth picks up to about 1% in the second half of this year as exports stabilize and household spending increases gradually. In this scenario, economic slack persists in 2026 and diminishes as growth picks up to close to 2% in 2027. In the de-escalation scenario, economic growth rebounds faster, while in the escalation scenario, the economy contracts through the rest of this year.

CPI inflation was 1.9% in June, up slightly from the previous month. Excluding taxes, inflation rose to 2.5% in June, up from around 2% in the second half of last year. This largely reflects an increase in non-energy goods prices. High shelter price inflation remains the main contributor to overall inflation, but it continues to ease. Based on a range of indicators, underlying inflation is assessed to be around 2½%.

In the current tariff scenario, total inflation stays close to 2% over the scenario horizon as the upward and downward pressures on inflation roughly offset. There are risks around this inflation scenario. As the alternative scenarios illustrate, lower tariffs would reduce the direct upward pressure on inflation and higher tariffs would increase it. In addition, many businesses are reporting costs related to sourcing new suppliers and developing new markets. These costs could add upward pressure to consumer prices.

With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged. We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade. If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate.

Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases from tariffs and trade disruptions are passed on to consumer prices; and how inflation expectations evolve. 

We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled.

Information note

The next scheduled date for announcing the overnight rate target is September 17, 2025.

Source: Bank of Canada Website