What to Expect for Mortgage Rates in Early 2025
As we start off 2025, it’s a great time to assess where mortgage rates stand and what we can expect in the months ahead. Whether you’re thinking of buying, refinancing, or just looking to plan your financial future, here’s a breakdown of the key updates that could affect your mortgage.
Prime Rate: A Significant Drop in 2024
The prime rate in Canada has seen a significant decline over the past six months. From 6.95% in June 2024, it dropped to 5.45% by December 2024, providing some much-needed relief for those with variable-rate mortgages. This drop is mainly due to the Bank of Canada’s rate cuts as it works to respond to softer economic conditions. For homeowners with variable-rate loans, this has meant lower payments, and the expectation is that the Bank of Canada might continue to cut rates in 2025.
Here’s a quick look at the key prime rate cuts that took place throughout 2024:
| Date | Prime Rate | Change |
|---|---|---|
| December 11, 2024 | 5.45% | -0.50% |
| October 23, 2024 | 5.95% | -0.50% |
| September 4, 2024 | 6.45% | -0.25% |
| July 24, 2024 | 6.70% | -0.25% |
| June 5, 2024 | 6.95% | -0.25% |
Fixed Rates: Modest Decline
Fixed mortgage rates have seen a more modest drop over the past six months. From June 2024 to December 2024, they’ve fallen by just under 0.60%, now hovering in the low 4% range. While this is a welcome change, the drop in fixed rates hasn’t been as dramatic as the drop in variable rates, and they’ve largely remained stable since October. The bond market, which heavily influences fixed-rate pricing, has been fluctuating, but there hasn’t been enough of a sustained trend to push rates significantly lower.
Here’s a look at how fixed mortgage rates moved in 2024:
| Date | Fixed Rate | Change |
|---|---|---|
| December 11, 2024 | 4.14% | +0.15% |
| October 23, 2024 | 3.99% | -0.40% |
| September 4, 2024 | 4.39% | -0.40% |
| July 24, 2024 | 4.79% | -0.05% |
| June 5, 2024 | 4.74% | — |
These rates were for high-ratio insured mortgages, where a down payment of less than 20% is made upon purchasing, and estimates.
Employment Report Recap: US Stronger Than Canada
We also saw some important employment data come in last week for both the US and Canada. The US economy added 256,000 jobs in December, far surpassing the 165,000 expected. This strong data suggests the US economy is still robust, potentially delaying any further rate cuts by the US Federal Reserve.
On the Canadian side, while our employment numbers were positive, the market’s reaction was much more muted compared to the US. This shows that bond investors are more focused on the strength of the US economy, which could influence interest rate movements on both sides of the border. We could still expect a 0.25% rate cut on January 29, 2025, but I would not be surprised if this gets pushed ahead.
Some Bank Reps and Mortgage Brokers May Be Misleading Clients on Rate Predictions
It’s important to be cautious about rate predictions, especially when it comes to advice from mortgage brokers and bank reps. A lot of brokers and reps are pushing certain products by suggesting that mortgage rates will fall significantly in the next few years. However, predicting fixed-rate movements is incredibly difficult, and anyone claiming to know exactly where rates are headed should be approached with caution.
Fixed rates have been steady, and predicting a major drop in 2025 is not something anyone can say with certainty. The bond market has been inconsistent, and there’s a lot of noise on the global economic front that could swing things in any direction. So, while brokers might have an opinion on where rates are headed, those opinions should be taken with a grain of salt—especially if you’re looking for certainty in planning how to pay down your mortgage.
To add to this, we have had many clients reach out to break their mortgage and switch to a lower rate due to their current penalties being at an all time low. When doing this, we always assess their interest savings based off of a fixed vs fixed comparison, not fixed vs variable. This is because it is impossible to predict the amortization schedule of a variable mortgage without any idea as to where the prime rate will end up at the time of their renewal. Fixed-rate to fixed-rate comparisons are guaranteed, because they are exactly that, fixed rate payments where the savings can be projected accurately.
Will Fixed Rates Drop in 2025? Probably Not a Sure Thing
As for fixed rates, it’s difficult to say if they’ll drop further in 2025. The bond market has been all over the place since mid-2024, with yields moving up and down. While some experts predict that fixed rates may dip slightly, no one truly knows. Economic uncertainties are still high, and any prediction of a large drop in rates should be viewed with skepticism.
If you’re hoping for significant decreases in fixed rates, it’s important to recognize that the future is unpredictable. The bond market, which influences fixed rates, has been relatively flat, and there’s no clear signal that we’ll see a major shift anytime soon.
The Bottom Line
To sum up, here’s what you can expect for mortgage rates in early 2025:
- The prime rate has dropped from 6.95% in June 2024 to 5.45% in December 2024, providing some relief for those with variable-rate mortgages.
- Fixed mortgage rates have dropped modestly by just under 0.60%, but they’ve stayed relatively stable in the low 4% range as of late.
- The strong US employment report added upward pressure to bond yields, which could affect Canadian mortgage rates. Some lenders have raised fixed rates as of today.
- Predicting significant drops in fixed rates for 2025 is uncertain, and anyone making bold predictions should be approached with caution.
- Brokers and bank reps should be seen as offering opinions about rates—not guarantees.
