Mortgage & Wealth Strategies

Fixed and Variable Rate Options Continue To Battle It Out As Market Forces Shift.

August 5, 2025 | Posted by: Matt Broom-Hall

After weeks of subtle signals and slowdowns, something finally gave—at least in the bond market. While the Bank of Canada (BoC) stayed firm on its overnight rate last week, deeper shifts suggest fixed mortgage rates could be turning a corner at last. As summer winds into fall, we’re seeing a convergence of softening data, cautious optimism, and a whole lot of recalculating in both Canada and the U.S.

The headline from last week may read “No Rate Cut,” but don’t be fooled—there’s been movement beneath the surface. The BoC held its policy rate steady, yes. But its tone? Far more dovish than it’s been in months. Instead of its usual economic forecast, the Bank openly acknowledged the uncertainty brought by unpredictable U.S. trade actions. Translation: policy flexibility is back in play.

This softer tone was in stark contrast to the U.S. Federal Reserve, which also held rates steady but spoke in more hawkish terms—flagging persistent inflation and a still-robust jobs market. That makes things a bit complicated, because Canada often takes its cues from our southern neighbour.

But last Friday, a surprising ripple ran through both countries. The U.S. jobs report came in well below expectations. Not only were July job gains weak—just 77,000 new jobs—but past months were also revised downward dramatically. You’d have to go all the way back to 1979 to find a bigger non-COVID revision drop like that. In short, the U.S. labour market may not be nearly as strong as it seemed.

Market reaction was swift. Bond yields, especially in the U.S., dropped sharply—which dragged Canadian Government of Canada (GoC) bond yields down with them. Since fixed mortgage rates are priced off those yields, this could mean some modest rate relief ahead—assuming the trend holds.

Here in Canada, most lenders had recently been inching up fixed mortgage rates due to prior bond market pressure. But they may soon need to change course. If GoC yields stabilize at their lower levels this week, expect lenders to at least stall those rate hikes—and in some cases, begin trimming fixed rates again.

Variable-rate mortgages, unfortunately, are still in a holding pattern. Market odds of a BoC cut at its next meeting (September 17) remain slim—just 15%. And discounts have narrowed for uninsured borrowers, which slightly dampens the variable-value proposition right now. That said, the BoC’s dovish tone opens the door wider for cuts later this year—especially if inflation trends cooperate.

What about term choices? Three- and five-year fixed rates are currently priced quite close together. When that happens, it typically makes sense to go with the five-year—better long-term security with relatively little rate premium.

As for variables, the math still suggests they’ll likely come out as the cheaper option in the long run. But if you choose a variable, go in with eyes wide open. They’re not for the risk-averse or cash-flow-tight. Rates could dip or spike—with little notice. So make sure there’s room in your budget and your mindset for short-term surprises.

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