Mortgage Blog

A friendly guide for Canadian homeowners who are about to renegotiate one of the biggest contracts of their lives.

Introduction - Why Everyone Is Talking About 2025 Renewals

If your mortgage is coming up for renewal between January and March 2025, you are not alone. Roughly one in three fixed rate mortgages in Canada will turn five years old during that window, thanks to the frantic home buying and refinancing wave of 2020 and 2021. Back then, rock bottom rates in the 1 percent range felt like a gift. Today, the rate landscape looks very different, but it is also improving more quickly than many expected even a year ago.

Early 2025 could be the sweet spot where policy maker caution, receding inflation, and hefty competition among lenders converge to give borrowers new negotiating power. Let's unpack the numbers, the forecasts, and-most importantly-what you can do right now to walk into your renewal meeting with confidence.

1. How We Got Here: A Capsule History of Rates 2020 - 2024

• Spring 2020: The Bank of Canada slashes its overnight target to 0.25 percent to fight a pandemic induced recession. Variable mortgages dip under 1.5 percent.
• 2021: Housing demand surges and five year Government of Canada bond yields remain below 1 percent. Lenders market five year fixed mortgages at record lows.
• 2022 through mid 2023: A global inflation spike forces the Bank of Canada into its fastest hiking cycle in 30 years, lifting the overnight rate to 5 percent. Five year fixed mortgages flirt with 6 percent.
• Late 2023 through 2024: Inflation cools. The Bank of Canada pivots to an easing cycle, trimming rates six times.
• By April 16 2025 the overnight rate sits at 2.75 percent, the lowest level since the hikes began.

2. Where We Stand Right Now - May 2025 Snapshot

• Bank of Canada overnight target: 2.75 percent. This sets the floor for variable mortgages and influences short term bond yields.
• Inflation (CPI, March 2025): 2.3 percent year over year, now inside the Bank's comfort band which eases pressure for further hikes.
• Five year Government of Canada bond yield: About 2.8 percent as of early May. This benchmark drives most five year fixed rate mortgages.
• Typical mortgage pricing: Uninsured five year fixed rates fall in the high 3 percent to low 4 percent range. Variable rates sit just above prime, currently near 4.95 percent.

3. The Five Forces That Will Drive Mortgage Rates Into Early 2025

• Bank of Canada policy path: Several major banks see another 50 to 75 basis points of cuts by July 2025 which would bring the overnight rate close to 2 percent. Variable and adjustable rate mortgages would fall and fixed rate discounts would widen.
• Inflation trajectory: Most forecasters expect CPI to drift toward 2 percent and stay there. A surprise uptick would stall or reverse rate cuts.
• Bond market expectations: Traders have largely priced in two Bank of Canada cuts by February 2025. If growth weakens, yields could fall another 30 to 40 basis points.
• Global central bank moves: Divergence from the United States Federal Reserve is pushing the loonie lower, but the Bank of Canada says it still has room to cut. A softer Canadian dollar can trim lenders' funding margins.
• Housing market momentum: CMHC expects sales to pick up as affordability improves, especially in the Prairies and Quebec, increasing competition among lenders for market share.

4. What the Big Banks and Analysts Are Predicting

• RBC Economics: Overnight rate at 2 percent by mid 2025 and five year bond yields averaging 2.5 percent.
• TD Economics: Five year bond yield flat around 2.75 percent to start 2025, drifting lower later in the year.
• BMO Capital Markets: Overnight rate down to 2.25 percent by Q3 2025 but warns the pace could slow if tariffs and fiscal uncertainty linger.
• CIBC Asset Management: Sees a 2.5 percent policy rate by year end 2025 with bond yields still attractive versus 15 year averages.

Consensus takeaway: Additional downside for mortgage rates is modest but real-think another 0.25 to 0.50 percentage points by early 2025 unless inflation flares up again.

5. Three Scenarios for Your Renewal Quote

• Base Case: Slow and steady cuts. Overnight rate 2.50 percent. Typical five year fixed 3.65 to 3.95 percent. Typical variable prime minus 0.75 percent. Probability about 55 percent.
• Rosy: Inflation melts and global growth cools. Overnight rate 2.25 percent. Five year fixed 3.25 to 3.55 percent. Variable prime minus 1.00 percent. Probability about 25 percent.
• Sticky: Inflation stalls above 2.5 percent. Overnight rate 2.75 percent. Five year fixed 3.90 to 4.25 percent. Variable prime minus 0.50 percent. Probability about 20 percent.

6. Renewal Playbook - Six Actions to Take Right Now

• Start the conversation 120 days out. Most lenders will hold today's lower rate for up to four months, giving you a free option if rates rise.
• Request multiple quotes. Big five banks, credit unions, and broker channel monolines price differently. A 0.20 percent spread on a 450 000 dollar balance saves about 900 dollars per year.
• Compare short term fixed terms. A three year fixed at 3.45 percent today could beat a five year at 3.95 percent if the overnight rate reaches 2 percent by 2026.
• Ask about a variable with an adjustable payment. If cash flow is tight, a static payment variable can smooth monthly costs while capturing future cuts.
• Check the fine print on penalty calculations. Some lenders use a hefty interest rate differential. Switching at renewal time avoids penalties entirely.
• Refresh your budget and credit. A strong credit score over 720 can unlock lender paid appraisal fees or rate buydowns worth hundreds.

7. Frequently Asked Questions

• Should I renew early in late 2025 instead? If your lender lets you renew six months early, watch bond yields. Lock early only if five year yields look poised to jump above 3 percent. Otherwise, the trend is still gently lower.
• Is it worth paying a fee to break now and refinance? Crunch the math. If you can drop your rate by more than 1 percent and you have at least three years left, the savings may eclipse the penalty, but in most cases waiting for natural renewal in 2025 is cheaper.
• What about converting my variable to fixed today? With the Bank of Canada actively cutting, converting right now often locks in a higher payment. Ask your broker to model both paths.
• Will the mortgage stress test get easier? OSFI still uses the greater of 5.25 percent or your contract rate plus 2 percent. As contract rates fall, qualifying gets easier automatically even if the formula does not change.

8. The Bottom Line - Your 2025 Renewal Could Be a Rare Window of Opportunity

Inflation is almost back in its cage, the Bank of Canada still has room to lower rates, and lenders are hungry for stable, low risk refinance business. That combination could bring five year fixed mortgages back into the low 3 percent range for well qualified borrowers in early 2025.

But markets can and do swerve. Hedge your bets by starting early, gathering competing offers, and leaning on an experienced mortgage broker who keeps one eye on bond screens and the other on your household balance sheet.

When you are ready to explore the options, reach out. I will comb the market for the sharpest renewal rate and translate every line of the fine print so you can focus on enjoying your home, not fretting about your mortgage.

Happy house holding, and here's to a smoother and cheaper 2025!