Rate

Are you considering acquiring real estate or renewing your mortgage? Knowing the latest developments in mortgage rates in Quebec and Canada helps you make the right choice regardless of your project. Mortgage rates influence purchasing decisions, selling, and renewal or refinancing of a mortgage. Their impact is direct on the cost of your loan, your purchasing power, and your monthly payments. Future buyer, borrower, or investor: discover with Xperto what you need to know in 2025 about the evolution of mortgage rates.

Understanding the different factors that influence rate evolution

Mortgage rate fluctuations result from the combination of several elements, whether they are:

    • economic,
    • financial
    • or external.

Links exist between these different factors and the evolution of mortgage rates: knowing them allows you to anticipate fluctuations and helps you make an informed decision.

In 2025, the most significant factors for mortgage rate evolution may be:

    • inflation

Inflation plays an important role in the evolution of mortgage rates in Canada, with a direct impact on borrowers and future homeowners. Inflation indicates a measure of the general rise in prices of goods and services and influences Bank of Canada decisions regarding the key rate.

When inflation is high or if it persists, the Bank of Canada tends to increase its key rate to stabilize the economy. This increase then impacts mortgage rates, as lending institutions adjust their offers. High inflation can make real estate borrowing more expensive, affecting the purchasing power of mortgage candidates.

During periods of moderate inflation, mortgage rates can remain attractive, offering opportunities to buy or renegotiate a loan.

    • the economic situation

Mortgage rate variations can also be linked to the evolution of the economic situation, both in Canada and globally. Strong economic growth stimulates capital demand from businesses. Such a situation encourages lenders to offer higher interest rates to attract the necessary funds to meet market needs. In this context, mortgage rates tend to increase, as lenders seek to maximize their returns in a dynamic economic environment.

Conversely, if economic growth slows down, fund demand decreases, leading to lower interest rates and making real estate borrowing more accessible.

    • the key rate

One of the major responsibilities attributed to the Bank of Canada is setting the key rate. This serves as the main tool to regulate the economy and control inflation.

When inflation is high, the Bank of Canada increases its key rate to slow down the economy. This increase makes credit more expensive, including mortgage loans, as banks and other lenders adjust their rates accordingly. For borrowers, this results in higher monthly payments and a higher total borrowing cost. People who have already taken out a variable-rate mortgage, for example, quickly feel these adjustments, as their payments fluctuate with the evolution of the key rate.

The Bank of Canada can also lower its key rate when inflation is low and the economy needs to be stimulated. Such a situation generates a decrease in mortgage rates, making real estate loans more affordable. For those who want to buy a house or renew their mortgage, a falling key rate thus means potentially lower monthly payments and reduced total borrowing costs.

    • the real estate market

Besides inflation and growth, the real estate market is also another key indicator allowing the Bank of Canada to regulate the economy in Canada. The monetary institution constantly monitors the state of the market to adjust its key rate according to the situation detected.

A strongly growing real estate market, with high demand and rapidly rising prices, is indeed a situation that can contribute to inflation. In such a context, the Bank of Canada may decide to increase its key rate to prevent price surges. Mortgage loans then become more expensive and credit access slows down. Such an increase in mortgage rates has a direct impact on buyers and homeowners. For those who want to buy a house, monthly payment amounts are then higher and borrowing capacity reduced. Those who must renew their loan also risk seeing their payments increase if they are not protected by an advantageous fixed rate.

Conversely, when the real estate market slows down or if prices drop, the Bank of Canada may choose to lower its key rate to stimulate purchases and promote homeownership.

    • employment

A dynamic job market, with low unemployment and strong job creation, stimulates consumption and inflation. In this case, the Bank of Canada is more likely to increase its key rate to avoid a strong inflationary surge.

Conversely, when the job market is reflected by rising unemployment and declining hiring, the Bank of Canada could trigger a reduction in its key rate to stimulate the economy. A decrease in mortgage rates would then make property purchase more affordable, thus encouraging real estate demand. For homeowners, this could also mean more attractive options to renew or refinance their loan under better conditions.

Looking back at mortgage rate evolution in 2024

The year 2024 marks a turning point for mortgage rates and the key rate in Canada. After a period of high inflation and successive rate increases between 2022 and 2023, the Bank of Canada has been initiating since June 2024 a downward cycle of its key rate. The monetary institution’s objective is to revive the economy and lighten borrowers’ financial obligations.

At the end of 2024, the key rate dropped to 3.25%, after reaching a peak of 5.00% at the same period 12 months earlier. This decrease in the key rate is beginning to be reflected in mortgage rates practiced by lending institutions.

    • Key rate: what happened in recent years?

The years preceding 2024 are marked by unprecedented volatility. In 2020 and 2021, mortgage rates reached historically low levels, stimulating the real estate market across the country. Many Canadians took advantage of these favorable conditions to buy a property or renew their loan at extremely advantageous rates. This period was nevertheless followed by a brutal reversal.

Between 2022 and 2023, soaring inflation indeed forced the Bank of Canada to adopt a strict monetary policy. Its key rate then jumped from 0.25% to 5.00% with rapid and drastic adjustment designed to contain the price surge. This increase had an immediate effect on mortgage rates, making borrowing much more expensive and slowing activity in the real estate market. Many borrowers had to deal with higher mortgage payments, particularly those who opted for variable rates.

    • Mortgage rate decline since mid-2024

With this decline initiated in 2024, prospects for 2025 remain uncertain, but signs of loosening borrowing conditions are encouraging. The Bank of Canada will likely continue to closely monitor inflation and economic growth before adjusting its key rate.

The Quebec and Canada real estate market at the beginning of 2025

    • Renewed dynamism in Quebec

The Professional Association of Real Estate Brokers of Quebec, APCIQ, indicates that Quebec’s real estate market is starting 2025 on a positive note, with sharply increased activity in several regions, particularly in Montreal and Quebec City.

In Montreal, residential sales are experiencing a spectacular increase with a 36% jump compared to January 2024, exceeding the historical average for this first month of the year. This activity recovery is observed in all property categories, whether single-family homes or condos.

    • Housing shortage and price increases

The strong buyer demand, combined with a decrease in the number of properties for sale, creates a seller-favorable market situation. The scarcity of available housing thus leads to increased competition among buyers, driving prices up. This trend is particularly marked in the Quebec City region, where prices are experiencing a significant increase:

    • + 30% for small income properties,
    • + 22% for condominiums
    • + 13% for single-family homes.
    • Contrasting trends at the national level

Across Canadian territory, statistics announce that the real estate market presents a disparate evolution. While some cities, like Calgary and Saskatoon, are experiencing price growth, respectively +4.3% and +3.2% compared to January 2024, others are recording decreases:

    • Toronto: -1.7%,
    • Ottawa: -1.5%,
    • Kitchener-Cambridge-Waterloo: -1.5%.

Mortgage rates: what to watch in 2025?

Various important points will have a direct impact on the evolution of the Bank of Canada’s key rate in 2025 and consequently on mortgage rates:

    • inflation: a factor under surveillance

Since August 2024, inflation in Canada has remained stable around 2%, meeting Bank of Canada expectations. Some components of the consumer price index or CPI, particularly housing-related costs such as rents and mortgage interest, nevertheless remain high and slow down the decline of overall inflation.

The GST/HST tax holiday on certain goods and services is also another temporary element to consider, as it is likely to add volatility to inflation statistics until March 2025. After this period, inflation may rise slightly again.

The underlying inflation measures followed by the Bank of Canada, such as CPI-median and CPI-trim, should nevertheless continue to decrease gradually. If this trend continues, new key rate cuts will be applied, thus leading to a reduction in mortgage rates.

    • the Canadian economy and economic growth

The Canadian economy shows signs of improvement after a slowdown in the third quarter of 2024. In 2025, economic growth should reach 1.8% on average, supported notably by household consumption and residential investment. Previous interest rate cuts are already beginning to stimulate household spending, although the job market remains moderate, with slowing wage growth.

The evolution of the output gap is another important indicator. It represents the difference between Canadian economic capacity and its actual production. If this gap continues to close, the Bank of Canada could maintain or adjust its key rate based on new economic conditions.

The reduction in immigration could also affect economic growth, particularly in the real estate and construction sector. A decrease in the number of newcomers could slow housing demand, thus affecting real estate prices and ultimately mortgage rates.

    • international markets and the global economy

Global economic trends will also have an influence on Canadian monetary policy. In North America, U.S. economic growth should remain solid in 2025, but it should slow down in 2026. American inflation, while persistent, should also gradually decrease. If the U.S. Federal Reserve adjusts its key rate accordingly, the Bank of Canada could follow a similar trajectory to avoid too large a gap between the two countries’ interest rates, a situation that could affect the Canadian dollar’s value.

In the eurozone, growth is moderate and in China, economic stimulus policies could maintain activity in the short term before an expected slowdown later. These developments will impact demand for Canadian exports, particularly in the energy and commodities sectors, and will influence economic growth and Bank of Canada decisions.

    • American trade policies and tariffs

A major uncertainty element for 2025 concerns trade relations between the United States and its partners, including Canada. The new American administration suggests it could impose higher tariffs on certain imports. This threat of trade war could weigh on consumer and business confidence, slow investments, and lead to Canadian dollar depreciation.

The Bank of Canada closely monitors these developments, as increased trade tensions could have a direct impact on inflation and economic growth and therefore on the key rate.

    • the Canadian real estate market

The slowdown in housing starts, particularly for condominium apartments, is an important situation to monitor in 2025. This context could limit housing supply in the medium term and exert upward pressure on existing property prices.

Conversely, rental apartment construction should remain sustained, although a slowdown is expected by 2027. A more restricted housing supply could maintain certain demand in the real estate market and influence price evolution and mortgage rates.

The rental market should also evolve with decreased demand and increased supply in 2025, potentially generating higher vacancy rates and slower rent growth. This trend is likely to influence real estate investor choices and orient some renters toward property purchase, especially if mortgage rates continue to decline.

Bank of Canada announcements scheduled for 2025

    • January 29, 2025
    • March 12, 2025
    • April 16, 2025
    • June 4, 2025
    • July 30, 2025
    • September 17, 2025
    • October 29, 2025
    • December 10, 2025

The Bank of Canada announcement of January 29, 2025

On January 29, 2025, the Bank of Canada lowered its key rate by 0.25%, setting it at 3%. The repercussions of this decision are significant for mortgage borrowers:

    • this decrease should lead to a reduction in mortgage rates at Canadian banks and make real estate financing more accessible,
    • homeowners with variable-rate loans may see their monthly payments decrease and those renewing their mortgage in 2025 hope for more advantageous conditions compared to previous years
    • in the longer term, this rate decrease could energize the real estate market and encourage new buyers to enter the market.

The Bank of Canada plans to carefully monitor economic developments to prevent inflation from returning.

Mortgage rates offered by financial institutions in February 2025

The offers from major Canadian banks in February 2025 are quite similar, with mortgage rates displayed at substantially similar levels and special rates at certain institutions. As an illustration, here are the interest rates for closed mortgages with a fixed interest rate on a 5-year term:

Conclusion

What financial strategy will you apply this year? Whether your plan is to buy a property, renew your mortgage or refinance it, it is essential to closely monitor the evolution of mortgage rates and the many factors that influence them. Throughout the year, learn about the decisions of the Bank of Canada, the inflation situation or the trends in the real estate market.

At Xperto, we make you aware of the main elements that may have a direct or indirect impact on mortgage rates in 2025. Each financial situation is unique and a well thought-out strategy can make all the difference. Our mortgage financing experts are at your disposal to offer you tailor-made support, advise you on the best options and help you optimize your mortgage. Contact us today for a personalized consultation and make the best decisions for your project.