Mortgage & Wealth Strategies

Mortgage Rates and Strategy in a Falling-Rate Environment

September 22, 2025 | Posted by: Matt Broom-Hall

It’s Official: The Rate Cuts Are Back!

We’ve officially entered “rate cut season” in Canada. The Bank of Canada trimmed its key interest rate by another 0.25% this past week, bringing its overnight rate down to 2.50%. This was no surprise—markets had already priced it in—but it does reinforce a clear message: the BoC is shifting into stimulus mode, and mortgage borrowers should take note.

Let’s break down how these moves are shaping rates right now, what’s expected in the coming months, and where the biggest opportunities—and pitfalls—might lie for homeowners and buyers.

Here’s what’s moving and why it matters.

In its latest statement, the BoC highlighted that economic uncertainty and fading inflation pressures are giving it more room to maneuver. Core inflation is still running above target at around 2.5%, but the Bank expects tariff-related price pressures to ease, especially with the rollback of Canadian retaliatory tariffs on U.S. goods.

Translation? The BoC is less worried about overheating and more focused on propping up activity. And that makes additional cuts likely—maybe even at the next meeting on October 29, where odds of another trim are already sitting around 50%.

Interesting side note: Historically, the BoC hasn’t stopped a cutting cycle until its policy rate hits at least 2.00%. With that in mind, it’s reasonable to expect another one—maybe two—cuts in the near term.

Fixed or Variable?
If you’re in—or considering—a variable-rate mortgage, you’ll soon see your interest rate drop by another quarter point. Variable rates move in lockstep with the BoC’s overnight rate, so every cut directly reduces your borrowing cost.

Fixed mortgage rates, however, are playing a different game. They’re tied to Government of Canada bond yields, which edged up slightly even after the BoC cut—and here’s why:

- The cut was already baked into the market.
- Bond investors reacted more strongly to the U.S. Federal Reserve’s tone, which wasn’t as dovish as expected. Even though the Fed also trimmed its rate, rising U.S. inflation spooked the bond markets and pushed up long-term yields south of the border—which pulled Canadian bond yields higher too.

The takeaway for fixed-rate mortgages? They're not falling in sync with variable rates right now. But current fixed rates—especially for 3- and 5-year terms—are still hovering near their long-term averages and could represent decent value if you prefer certainty.

Still, if you’re comfortable with some rate movement, variable continues to offer the best shot at long-term savings, thanks to the likely path of the BoC’s rate.

A Quiet Opportunity: High-Ratio Mortgages
Here’s a surprisingly overlooked tip: Borrowers with less than 20% down often access better interest rates than those with bigger down payments.

It might sound backward, but insured (“high-ratio”) mortgages are less risky for lenders, which lets them offer better pricing. So if you’re tight on your down payment but have strong income and credit, don’t assume you’re at a disadvantage—you might actually come out ahead.

Tip of the Week
Don't just ask your broker/bank rep “what’s the best rate?”—but “what are the total costs and risks of this strategy?”

Because when it comes to mortgages, the fine print matters far more than the headline rate. Especially in a volatile environment like this.

Want to see a real example of how the fine print can cost (or save) you thousands? Check out my latest Strategy Vault post: What Canadian Borrowers Need to Know About Fixed-Rate Mortgage Penalties

Until next time—enjoy the dip. We’ll be watching the October meeting closely.

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