Mortgage Interest Rate Forecast 2025

Summary

• It is predicted that the Bank of Canada will cut interest rates by 2.75% by 2025 bringing the interest rate to 2.25%.
• Inflation is predicted to return back to the target 2% by the middle of 2025

For the latest Canadian interest rate forecast, read more here.

What is the interest rate forecast for 2025 in Canada?

It is predicted that there could be an increase in variable-rate payments for people renewing their mortgage in 2025 or 2026, depending on the expectation that the Bank of Canada will cut interest rates by 2.75% by 2025 bringing the interest rate to 2.25%. Although interest rates are projected to drop, variable rate payment hikes could be a result of borrowers paying off less principal in order to keep their payments fixed in the current high-interest rate environment.

(sources: Globe and Mail and TD Bank)

What are the economic growth predictions for 2025 in Canada?

As higher interest rates work their way through the economy, economic growth is expected to slow and average around 1% the rest of 2023 and early 2024. The economy will then move into modest excess supply before growth picking up to 2.4% in 2025. GDP growth is projected to gradually pick up starting in the second half of 2024, reaching 2.4% in 2025. The Bank of Canada predicts that the economy will grow by 2.7% in 2025.

(Source: Bank of Canada)

Will inflation return back to its target rate in 2025?

Inflation is predicted to return back to the target 2% by the middle of 2025. However, the forecast for 2025 is uncertain as core inflation rates have been consistently in the range of 3.5% to 4%. Short-term inflation expectations are decreasing but are still quite high. The demand for goods and services has been stronger and more prolonged than expected and indicates a higher risk of progress toward price stability slowing down or stalling.

(Source: Bank of Canada)

What are the factors influencing the potential rise or fall of interest rates in Canada in 2025?

The Bank of Canada and other financial institutions take into consideration several factors that influence interest rates in Canada. Some factors include economic growth, inflation, employment levels, financial markets, the housing market, currency rates and the Bank of Canada monetary policy.

What impact will changing interest rates have on the housing market in 2025?

Depending on whether interest rates rise, fall or stay stable will impact how the housing market will be in 2025. If interest rates rise in 2025, this could lead to increased mortgage rates and result in higher borrowing costs. This could also lead to a decrease in home buying demand and result in home prices declining.

If interest rates go down in 2025, this could lead to decreased mortgage rates and lower borrowing costs and an increase in home demand. However, this could lead to a competitive seller’s market as home prices increase. Other factors that will impact the housing market in 2025 are economic growth, demographics, employment levels and housing supply.