Bank of Canada Cuts Rate by 0.25%: What It Means for Homeowners and Where Rates Are Heading Next
- Simon Bilodeau
- 17 hours ago
- 6 min read
The Bank of Canada has lowered its overnight rate by 0.25%, bringing the policy rate to 2.25% and shifting Prime down to 4.45%. This marks the eighth rate cut in the last twelve meetings and is likely the final move for 2025. The possibility of further cuts in 2026 remains open, but the path ahead depends heavily on the evolution of inflation, the impact of U.S. tariffs and global conditions, and the upcoming federal budget on November 4. The Bank’s next meeting will take place on December 10.
Inflation remains the central story. September’s reading of 2.4% was slightly above expectations but continues to point toward a slow convergence to the Bank’s 2% target. Food prices and some services remain elevated, while underlying inflation measures are cooling gradually. The Bank openly acknowledges that tariff-driven cost pressures are outside the reach of monetary policy. This reality has made the Bank more tolerant of inflation modestly above 2%, provided the broader disinflationary trend remains intact.
Economic growth continues to be fragile. July’s 0.2% rise in GDP, following three months of contraction, suggests stabilization but not strength. The second quarter saw a 1.6% annualized decline, and consumer confidence remains very weak at 47.8. Even though Canada may avoid a technical recession under the classic definition of two quarters of negative growth, the economy has been in a per-capita recession for more than a year. Real GDP per person has fallen in most quarters since mid-2022, underscoring the pressure on living standards. In practice, households experience this far more directly than any aggregate GDP number.
The labour market mirrors this softness. The unemployment rate remains at 7.1%, participation is flat at 65.2%, wage growth has cooled toward 3%, and job vacancies continue to decline. Businesses are reluctant to expand hiring but have not yet moved toward mass layoffs, a sign of caution rather than panic. For policymakers, this slow cooling is necessary to keep inflation in check. Business investment is also very low. This is part of the broader story explaining why there is almost no growth planned for the foreseeable future. The economy is expected to grow only 1.2% in 2025 and 1.1% in 2026. Those figures are near rounding error for an economy the size of Canada and leave room for more negative quarters here and there, which reinforces why businesses remain cautious about investing.
Mortgage markets reacted immediately to today’s rate cut, but unevenly. Variable-rate borrowers are already seeing small reductions in monthly payments as Prime adjusts downward. An approximate rule of thumb remains $13 of payment reduction per $100,000 borrowed, meaning that on a $500,000 mortgage, monthly savings will be about $65.
Fixed-rate mortgages, however, will not see any changes today. The natural question is what to expect in the near future. Fixed rates follow the five-year Government of Canada bond yield, which has been rising, not falling, on the news. Markets are pricing in fewer future rate cuts next year, higher long-term inflation risks, and elevated U.S. yields, which heavily influence Canadian yields. Tariffs and ongoing global uncertainty have also increased the long-term risk premium investors demand, pushing yields higher even as the Bank of Canada itself is easing.
Where rates go next will hinge on several forces, and one of the most important is the federal budget on November 4. Markets are already positioning around this event. A budget with larger deficits, particularly above roughly $85 billion, would mean significantly more government borrowing than markets currently anticipate. That borrowing competes with other long-term investments and pushes bond yields higher. In plain terms: a large deficit would put upward pressure on fixed mortgage rates.
The Federal budget
Conversely, if the government delivers a budget that shows more restraint, keeping the deficit below the $85 billion threshold, markets will interpret that as a sign of reduced long-term borrowing pressure. This would ease pressure on the five-year yield and could create room for fixed mortgage rates to decline in the months ahead. The budget will not affect variable rates directly, but it will have a meaningful influence on the direction of fixed rates.
In the broader outlook, variable rates are expected to continue easing next year, albeit slowly. If inflation moves steadily toward 2% and labour market softness persists, an additional 0.25% to 0.50% of reductions through 2026 remains plausible. The pace of future cuts will depend on whether inflation and the Canadian economy continue to follow the Bank’s forecast. Large and sustained deviations from that outlook would change their rate decisions. Fixed rates will only meaningfully decline when bond yields fall, something that requires softer economic conditions, declining U.S. yields, or a market-friendly federal budget.
Mortgage Delinquencies
There has also been a lot of discussion about rising mortgage delinquencies. Delinquencies refer to borrowers who are 90 days past due. Even though these have risen from their historic low of 0.14% in 2022, they remain very low by global standards: 0.22% nationally in the most recent data, and only 0.19% in British Columbia. What this means in practical terms is that in a smaller city like Ladner, where I live, with roughly 9,200 residential properties, about half have no mortgage at all. Among the remaining mortgaged properties, only about nine are in default at any given time. This is far from a level that would risk any type of market collapse. And to be fair, a portion of those delinquencies typically involve deceased owners, since the most common causes of non-payment are death, divorce, or long-term income loss from job loss or major health problems. The only category likely to worsen meaningfully in a recession is involuntary job loss, especially in regions heavily exposed to sectors currently facing tariff pressure, such as auto manufacturing and metallurgy. Outside of those areas, the risk remains limited.
What to do for your mortgage
For homeowners approaching renewal, acting early remains prudent. At minimum, having a clear understanding of the market and a plan that reflects your needs is more important than ever. Those considering refinancing may find meaningful cash-flow improvements in today’s gradually easing environment. And for borrowers choosing between fixed and variable, shorter-term fixed options, especially the three-year fixed, have been a sweet spot between rate stability and flexibility. The goal is to keep room to manoeuvre if short-term rates fall significantly in the future and refinancing becomes attractive. The case for a five-year variable is not guaranteed either. If your current variable rate is higher than available three- or five-year fixed rates, the chances of significant savings are limited. However, if your variable rate is still lower than fixed alternatives, you may see some benefit sometime next year, though the window is uncertain. If you already have a variable rate today, waiting and watching remains a sensible approach.
For those looking to buy a property, this all may sound intimidating, and I understand why. But rates around and below the 4% mark are historically considered low. Not 2021 level lows, those will not return unless the Canadian economy collapses to pandemic like conditions, which is extremely unlikely. Despite the noise, there are compelling purchase opportunities in the current market. Even though prices are not falling quickly, motivated sellers exist and deals can be made. The key is to look, inquire, and be strategic. Planning to hold a property for the medium to long term remains essential, because we only recognize the bottom after it has passed. Are we near that bottom? I believe we are close. Will prices stay flat next year? Possibly. Will a future trade deal change the market dramatically? Absolutely. And as people gradually become desensitized to today’s steady flow of negative headlines, demand will naturally revive. If the Bank of Canada continues cutting next year, some buyers will re-enter, adding momentum.
Today’s rate cut confirms that the Bank of Canada has moved its policy into the lower end of the neutral zone. Before shifting into an accommodative stance, policymakers will wait and see how the data evolves. The path to lower mortgage rates will be uneven, influenced by a per-capita recession at home and global forces abroad. Homeowners who understand this evolving landscape and position themselves early will be best equipped to benefit from the next phase of rate movements.
Let’s talk. Book your free consultation or give us a call—we’re here to help you make smart mortgage decisions.
Simon Bilodeau and Gina Lopez
604-828-9864
Simon Bilodeau is a mortgage broker, financial writer, and co-founder of RefinanceBC. He specializes in translating economic trends into clear mortgage strategies for BC homeowners. Often featured on Radio-Canada and CBC, Simon is known for honest, data-driven advice delivered in plain language. He works alongside his wife Gina, forming a bilingual team serving clients across the province.
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