Bank of Canada Rate at 2.25%: What It Means for Your Mortgage in 2026

# Bank of Canada Rate at 2.25%: What It Means for Your Mortgage in 2026

After nine consecutive rate cuts that brought the overnight rate down from 5.00% in June 2024 to 2.25% by late 2025, the Bank of Canada has held steady entering 2026. For Canadian mortgage holders and prospective buyers, this is the most significant rate environment shift in over a decade.

This article from The Mortgage World breaks down what the current rate means for your mortgage, whether you should lock in or stay variable, and what to do right now.

Source: Bank of Canada, Policy Interest Rate Decisions, 2024 - 2025

Where Rates Stand Right Now

Here is a snapshot of the current rate environment as of March 2026.

Source: Bank of Canada, Selected Bond Yields, March 2026

The gap between variable and fixed rates has narrowed considerably. In mid-2024, variable rates were above 6% and five-year fixed rates hovered around 5.5%. Today, both options are in the 3.5% to 4.5% range for well-qualified borrowers.

How the Bank of Canada Rate Affects Variable Mortgages

Variable rate mortgages are directly tied to the prime rate, which moves in lockstep with the Bank of Canada overnight rate.

The chain of impact:

1. Bank of Canada sets the overnight rate (currently 2.25%)
2. Major banks set their prime rate approximately 2.20% above the overnight rate (currently ~4.45%)
3. Your variable mortgage rate is expressed as prime minus a discount (e.g., prime - 0.70% = 3.75%)

Every 0.25% cut by the Bank of Canada reduces your variable rate by 0.25%. Over the nine cuts from 5.00% to 2.25%, variable rate holders have seen their rates drop by 2.75 percentage points.

What that means in dollar terms:

If you held a variable rate mortgage through the entire cutting cycle, you have experienced dramatic payment relief.

Why Fixed Rates Have Not Dropped as Much

This is the question we hear most often: "The Bank of Canada cut rates by 2.75%, so why is the five-year fixed rate not at 2%?"

The answer lies in what drives fixed rates. The Bank of Canada overnight rate directly controls variable rates, but fixed rates are driven by the bond market, specifically the Government of Canada five-year bond yield.

Bond yields reflect market expectations for future inflation, economic growth, and monetary policy. Even though the Bank of Canada has cut aggressively, bond markets are pricing in the possibility that:

• Inflation may rebound, requiring rate increases
• The neutral rate (the rate that neither stimulates nor slows the economy) is higher than pre-pandemic levels
• Government borrowing is pushing bond yields higher

As a result, the five-year bond yield has settled around 3.10%, and five-year fixed mortgage rates sit in the 3.99% to 4.89% range. This is significantly lower than the 5.5% fixed rates of mid-2024, but not as low as many borrowers hoped.

Source: Bank of Canada, Canadian Interest Rates and Monetary Policy Variables, 2026

The Renewal Challenge: Locked in at 1.79% in 2021

Perhaps the most impacted group right now is homeowners who locked into five-year fixed rates in 2020 and 2021, when rates were at historic lows of 1.49% to 2.09%. These mortgages are coming up for renewal in 2025 and 2026.

The renewal shock scenario:

While the increase is real, it is far less severe than what was projected in 2023 when rates were over 5%. The Bank of Canada's cutting cycle has softened the renewal blow considerably.

If you are renewing in 2026, do not simply sign your lender's renewal offer. Shop the market through a broker. Even a 0.25% difference on renewal saves over $5,000 over a five-year term on a $435,000 mortgage. Read our detailed renewal guide for step-by-step advice.

Fixed vs Variable: What Should You Choose in 2026?

This is the central question for every buyer and renewer right now.

The case for variable:

• The Bank of Canada may cut further if the economy weakens
• Variable rates are currently lower than fixed rates (3.55% - 3.95% vs. 3.99% - 4.89%)
• You have flexibility to convert to fixed at any time with most lenders
• If rates stay flat or decline, you save money every month

The case for fixed:

• Protection if inflation surprises to the upside and the Bank of Canada raises rates
• Certainty of payment for five years, valuable for budgeting
• The gap between variable and fixed is narrow, meaning you are not paying much for certainty
• If you sleep better with predictable payments, that has real value

Our view at The Mortgage World:

With the overnight rate at 2.25% and limited room for further cuts (most economists expect 0 to 2 more cuts of 0.25% each), the advantage of variable over fixed is smaller than it has been historically. For borrowers who value certainty, locking into a competitive five-year fixed rate around 4.09% to 4.29% offers excellent value relative to the last three years.

For borrowers comfortable with some uncertainty, a variable rate in the 3.55% to 3.75% range still offers a meaningful discount, with the ability to convert to fixed if conditions change.

Rate Forecast for the Remainder of 2026

No one can predict interest rates with certainty. However, here is what the consensus economic view looks like.

Source: CMHC, Mortgage Industry Report Q1 2026

The Bank of Canada has signalled that it is comfortable in the 2.00% to 2.50% range and will make data-dependent decisions going forward. The era of aggressive cuts is likely over, and the era of aggressive hikes appears to be behind us as well.

Three Things You Should Do Right Now

1. If you are renewing in 2026, start shopping early.

Do not wait for your renewal date. Contact a broker 120 days before your maturity date to compare rates across multiple lenders. Your current lender's renewal offer is almost never the best deal.

2. If you are on a variable rate, decide whether to lock in.

With fixed rates in the low 4% range and variable rates in the mid-to-high 3% range, the decision is closer than it has been in years. Model both scenarios with your broker using your actual numbers.

3. If you are considering buying, the window is favourable.

Rates are at their lowest levels since 2022. Combined with housing prices that have plateaued in many markets, the affordability equation has improved significantly. Getting pre-approved now locks in today's rate for 90 to 120 days.

Whether you are buying, renewing, or simply evaluating your current mortgage, The Mortgage World can help you navigate this rate environment with confidence. We work with over 30 lenders to find the best fit for your specific situation.

Explore renewal options or start a refinance consultation.

References

• Bank of Canada - Policy Interest Rate: https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
• Bank of Canada - Bond Yields: https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/
• CMHC - Mortgage Industry Report: https://www.cmhc-schl.gc.ca/professionals/housing-markets-data-and-research
• Bank of Canada - Monetary Policy Report: https://www.bankofcanada.ca/publications/mpr/