Rate Cut Today, Higher Rates Tomorrow? The Mortgage Market’s Uncertain Future

On Wednesday this week, the Bank of Canada cut the overnight lending rate by 0.25%, bringing the prime rate down to 5.20%, effective immediately.

For homeowners, buyers, and anyone with a mortgage or line of credit, this might seem like great news—but there’s more to the story. While lower rates offer short-term relief, looming U.S. tariffs could reverse these gains and drive up borrowing costs in the months ahead.

One thing to note about fixed rates: While variable mortgage rates are directly influenced by the Bank of Canada’s overnight lending rate, fixed mortgage rates are based on Canadian bond yields. This means fixed rates don’t always move in sync with rate cuts—if bond yields rise due to economic uncertainty, fixed rates can actually increase even when the Bank of Canada lowers rates.

What This Rate Cut Means for You

A lower rate means:

• Lower borrowing costs – If you have a variable-rate mortgage or line of credit, your interest payments have now decreased if in an adjustable payment like Scotiabank versus TD Bank’s fixed payment variable product.
• Increased home affordability – Lower rates mean higher buying power, making homeownership more accessible if that is something on your horizon.
• A more active market – More buyers may re-enter the market, potentially affecting home prices which if you are considering selling may be the right time to think about the switch and maximize your home sale price.

Essentially, if you’re considering buying, refinancing, or renewing your mortgage, now is the time to explore your options before the market could potentially shift again.

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Will Tariffs Undo This Rate Cut?

While this latest rate cut is helpful (and welcomed), there’s a growing risk that U.S. tariffs on Canadian goods could trigger inflation, forcing the Bank of Canada to raise rates again.

This would be a self-inflicted wound on the economy both here and south of the border, increasing the cost of imports, driving up prices, and ultimately making borrowing more expensive. If that happens, today’s lower rates may be short-lived.

The next Bank of Canada rate announcement is on March 12, but before that, we expect more clarity on the U.S. tariff situation around February 1. I’ll be keeping a close eye on these developments and will provide an update once we have a clearer picture.

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How to Take Advantage of This Window

Rather than waiting for uncertainty to take hold, here’s how you can get ahead of the curve:

• If you’re considering refinancing – This could be the right time to lower your payments and reduce interest costs before any future rate hikes and while rates are relatively low. See this recent article entitled “Stop Overpaying Your Mortgage” to show an example of how to save with today’s rates.
• If your mortgage is up for renewal – Don’t just accept the lender’s offer. Don’t be swayed by the lender’s early renewal offer. They’re likely approaching you well before your renewal date to lock you in, hoping you won’t look for a better deal. That sense of security might feel tempting, but you could be missing out on significant savings. Let’s review all available options to ensure you’re getting the best deal possible.
• Stay informed – Tariffs are a political move, not an economic necessity, and their impact on interest rates is still unknown. The key is being proactive rather than reactive.

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Final Thoughts

This rate cut provides an opportunity, but with uncertainty on the horizon, making smart mortgage decisions now is more important than ever. Whether you’re buying, refinancing, or renewing, the key is getting ahead of market changes before they happen.

If you have questions or want to discuss your next steps, I’m here to help.

Book a quick call with me today.

Click here to pick a time that works best for you.

Stay tuned for my next update on February 1, where I’ll break down the latest on tariffs and what it means for mortgage rates.