On October 29 2025, the Bank of Canada (BoC) reduced its target overnight rate by 25 basis points to 2.25 %. For Canadian homeowners who are thinking about refinancing their mortgage, this move matters-potentially changing the cost, timing and type of mortgage strategy you choose.
When the BoC lowers its policy rate, it influences short-term borrowing costs, prime rates, and indirectly the mortgage market. But the impact is not uniform-fixed-rate and variable-rate mortgages may respond differently.
Here are the key facts:
If you hold a mortgage in Canada and are considering refinancing, now is a timely moment to review your strategy. Here's how the rate cut could create opportunities, or signal caution.
Because variable-rate mortgages are typically tied to the prime rate (which tends to follow the BoC's policy rate), a drop in the policy rate often means your variable mortgage payments may drop, or more of your payment goes toward principal.
If you currently have a variable-rate mortgage or are considering switching to one during refinancing, this cut suggests you might benefit from lower monthly payments, provided you're comfortable with the variable-rate risk (i.e., rates could go up in future). For example, one industry note highlighted that a 25 bps cut could translate into "roughly $12.50/month savings per $100,000 of mortgage debt," depending on amortization and other factors.
If you hold or are thinking of a fixed-rate mortgage, the impact is more muted. Fixed rates are driven by bond yields, lender margins and expectations for future rate changes. A policy rate cut doesn't immediately guarantee a lower fixed mortgage rate.
According to the BoC's own analytical note, about 60 % of Canadian mortgage holders renewing in 2025–2026 may still face increased payments compared with December 2024, even in a lower rate environment-particularly those with five-year fixed terms.
For refinancing a fixed-rate mortgage, you should compare the current fixed-rate product with your renewal or payout penalties, amortization remaining, and overall cost. If fixed rates remain high relative to where you could lock in, there may still be value-but the "cheap refinance" window may not be as wide as with variables.
When refinancing, you also consider amortization length. Lower interest rates, or the expectation of stable/lower rates-can allow you to shorten your amortization without significantly raising payments, or keep payments similar while reducing total interest cost.
For example: if refinancing and moving some of the equity (or cash-out) you could take advantage of a lower rate environment to set a schedule that better aligns with your long-term goals, such as eliminating the mortgage sooner and freeing up more monthly cash flow for other objectives (like your health and fitness goals, investment or retirement planning).
Let's walk through practical scenarios you or your clients might face, and how the rate cut changes the decision-tree.
If your mortgage is variable and you're about to renew (or switch lender) as part of refinancing, the rate cut is good news. Lower policy rate → likely lower prime → more favourable variable payments.
Action plan: review your current payment vs projected payment; ask your broker what current lender prime-based variable rates are; consider whether you expect rates to go up in the medium term (and if you're comfortable staying variable). If you expect rates to stay low for a prolonged period, staying variable or refinancing into a variable product might make sense.
If you hold a fixed-rate mortgage, the rate cut matters less immediately, but it still influences your expectations for future fixed rates. If lenders anticipate no further big cuts, fixed rates might not fall significantly, so waiting may not bring much benefit.
Action plan: evaluate the payout penalty; compare current available fixed terms; check how much you'd save by refinancing vs staying; assess your risk tolerance. If you have 2-3 years left, sometimes staying might be best. If you have 8-12 years left amortization or large balance, refinancing could still help lock in a strong rate.
In a lower rate environment, refinancing with cash-out becomes more attractive because the interest cost is cheaper-especially if you can keep amortization manageable. Given the BoC has cut to 2.25% and signalled that it may hold there, you may have a "window" for locking favourable terms.
Action plan: assess how much equity you have, your amortization remaining, and the purpose of the cash-out. Make sure you're not extending your amortization unwisely (especially if your goal is debt reduction). Always compare rates, plus any fees or closing costs, against the benefit of doing the refinance now.
Refinancing isn't always a straightforward "yes" when rates drop. Here are some risks and factors to consider.
Here is a practical checklist to run through when considering refinancing in light of this recent rate cut:
Here are the most common questions we're seeing, and the answers.
The October 2025 rate cut by the Bank of Canada to 2.25% is a meaningful signal for Canadian homeowners: it suggests that borrowing costs may be more favourable than earlier in the year, particularly for variable-rate mortgages, and it provides an opening to reassess your refinancing strategy.
If you're approaching renewal, have a variable mortgage, or are considering cash-out or a shorter amortization, this is a timely moment to talk to your mortgage broker and review your position. On the other hand, if you're locked into a fixed rate with only a short term remaining, the benefits may be less dramatic, but still worth examining.
In short: use this rate cut as a trigger to run the numbers, compare your options, and align your mortgage strategy with your financial goals-whether that's reducing your monthly payment, paying off your home faster, or freeing up cash flow for other priorities.
Need help? Our team specializes in Canadian mortgages and can review your renewal or refinance options tailored to your province, property type and long-term goals. Reach out today.