In today’s global economy, shifting trade policies are making waves—and Canadian homeowners could be feeling the effects. With new tariffs and economic uncertainty looming, mortgage rates and homeownership costs in Canada could change in unexpected ways. If you’re navigating the housing market, understanding the potential impact of tariffs is crucial.
Here’s what’s happening and how it could affect your mortgage in the coming months.
What’s Happening with Tariffs?
The U.S. has been putting pressure on Canadian imports, particularly steel and aluminum, with the threat of imposing tariffs as high as 25%. The Canadian government is preparing for potential retaliatory measures, which could spark a trade war between the two countries. If these tariffs go through, they would disrupt supply chains and drive up the cost of imports, leading to inflation and a rise in the prices of goods. This could also weaken Canada’s economy, with experts predicting a potential GDP loss of 2.5% by 2026, according to some forecasts.
This could create an environment of higher costs, both for businesses and consumers. For Canadians, this could have a direct effect on your mortgage rates and housing affordability.
How Could This Impact Your Mortgage?
1. Higher Interest Rates
When inflation rises due to increased import costs (thanks to tariffs), the Bank of Canada may need to take action. To curb inflation, the Bank could raise interest rates to help cool the economy. This is where things could get tricky for homeowners and homebuyers:
- If you have an adjustable variable-rate mortgage (ARM), your payments could increase as the Bank raises rates. With higher inflation, the cost of borrowing could jump.
- Even those looking for fixed-rate mortgages could face higher rates as lenders adjust to the new economic environment. Future homebuyers, or homeowners renewing, may see higher fixed-rate options, which means borrowing costs will rise across the board.
Some experts predict that inflation could peak as high as 7.2% under the current trade conditions. For homeowners, this means securing a stable rate could become even more important as rates may be likely to increase in the coming years should this occur.
2. Stricter Lending Criteria
Economic uncertainty tends to make lenders more cautious. As tariffs take their toll on the economy, mortgage lenders may tighten up their approval processes. This could include:
- Higher credit score requirements
- Larger down payments
- More detailed financial documentation
If you’re considering buying a home, refinancing, or renewing your mortgage, stricter lending rules could make it harder to qualify. If you’re a first-time homebuyer, now could be the time to get pre-approved, so you’re not caught off guard by changes in lending standards.
3. Housing Affordability Challenges
Higher interest rates don’t just impact how much you pay on your mortgage each month—they could also make it harder for potential buyers to afford a home. As borrowing costs rise, housing affordability in Canada could worsen significantly. This has two major effects:
- First-time homebuyers might find it more difficult to get into the market. Higher rates and tighter lending standards could prevent many people from securing the financing they need.
- Current homeowners who are due for mortgage renewal may face a “payment shock.” If you secured your mortgage during a time of low rates and are renewing at a higher rate, your monthly payments could increase substantially.
The Canadian housing market is already under pressure, and with the potential for higher borrowing costs, it could become even harder to navigate homeownership.
In 2025, about 1.2 million Canadians will be renewing their mortgages—many of them with terms locked in when interest rates were historically low. These homeowners are likely to face higher monthly payments, leading to financial strain. It’s critical to start planning ahead now to avoid unexpected payment increases.
Why Should You Act Now?
With tariffs and trade disputes on the horizon, there are several reasons why now is the time to secure your mortgage strategy.
1. Lock in Your Rate Before Rates Rise
If you’re nearing mortgage renewal or considering refinancing, locking in a fixed-rate mortgage now could help protect you from future interest rate hikes. As tariffs push inflation higher, rates are likely to increase, so locking in a competitive rate now can provide financial stability. You can lock in as early as 130 days from your renewal date with some lenders.
2. Get Pre-Approved Early
As lending standards tighten, it may become harder to secure mortgage approval in the future. If you’re planning to buy a home, get pre-approved early to understand what you can afford and what interest rates might be available. A pre-approval helps you stay ahead of stricter requirements, especially if you have a lower credit score or a smaller down payment.
3. Consider Consolidating any High Interest Debt
If you have a line of credit or credit card with large outstanding balances, you may want to consider consolidating them into your mortgage on renewal. This will help minimize interest costs, as well as help increase cashflow.
4. Consider Increasing your Amortization
If you are up for renewal and worried about higher payments, you may want to consider increasing your amortization up to 30 years(the maximum on a conventional mortgage). This could provide instant payment relief as we wait for the market to adjust.
Fixed or Variable Mortgage: Which is Right for You?
With variable rates creeping down closer to the fixed rates available, many are leaning in favour of variable now. This does not mean it is the right choice for everybody.
- Fixed-rate mortgages are a safe bet if you value stability and predictability. If you lock in a fixed rate now, you’ll have consistent payments for the duration of your mortgage, which can help with budgeting. In an uncertain economic environment, this stability can be a big advantage.
- Variable-rate mortgages might offer lower initial rates, but they come with the risk that your payments could increase if interest rates rise. If you’re comfortable with some uncertainty and have the financial flexibility to manage fluctuations, a variable mortgage might be right for you.
For those seeking variable, here is an idea of how prime rates might change over the next few quarters:
| Bank | Current Policy Rate | Policy Rate: Q1 ’25 | Policy Rate: Q2 ’25 | Policy Rate: Q3 ’25 | Policy Rate: Q4 ’25 | Policy Rate: Q4 ’26 |
|---|---|---|---|---|---|---|
| BMO | 3.00% | 3.00% | 2.75% | 2.50% | 2.50% | 2.50% |
| CIBC | 3.00% | 2.75% | 2.25% | 2.25% | 2.25% | 2.25% |
| National Bank | 3.00% | 2.75% | 2.50% | 2.25% | 2.25% | 2.75% |
| RBC | 3.00% | 2.75% | 2.25% | 2.00% | 2.00% | |
| Scotiabank | 3.00% | 2.75% | 2.75% | 2.75% | 2.75% | 2.75% |
| TD | 3.00% | 2.75% (-25bps) | 2.25% (-50bps) | 2.25% (-25bps) | 2.25% | 2.25% |
source: https://www.canadianmortgagetrends.com/big-bank-rate-forecasts/**
As you can see, some banks anticipate a reduction in prime rates over the next few quarters, with gradual cuts expected into 2026. If you have an adjustable variable-rate mortgage, these potential reductions could result in substantially lower payments in the near term.
Ultimately, whether you choose a fixed or variable rate should depend on your financial goals and ability to weather fluctuations. A fixed rate provides stability, while a variable rate can offer savings if interest rates decrease. Keep in mind that you can lock a variable in to a fixed rate at anytime during the term.
A Blended Mortgage of Both Fixed And Variable For Those Who Want Best of Both Worlds
There are strategies you could utilize where you can take advantage of both a fixed AND variable rate mortgage, involving splitting your mortgage up into 2 components. This may be a good strategy for some who do not want to commit to one choice or the other, but instead want to diversify.
Final Thoughts
As tariffs and trade policies continue to reshape the global economy, Canadian homeowners and homebuyers need to be prepared for higher interest rates, stricter lending standards, and more volatility in the housing market. If you’re planning to buy, refinance, or renew your mortgage, acting early could help you lock in a good rate and protect yourself from future economic shifts.
The right mortgage strategy can provide peace of mind as you navigate the changing market. Whether that’s locking in a fixed rate, getting pre-approved, or refinancing before rates go up, taking proactive steps now can help you stay ahead of the curve.
Key Takeaways:
- Interest Rates May Rise: Tariffs could drive inflation, leading the Bank of Canada to raise interest rates, which will impact your mortgage payments.
- Stricter Lending Rules Ahead: With economic uncertainty, lenders may tighten their approval standards, making it harder to qualify for a mortgage.
- Lock in Your Rate Early: If you’re nearing a renewal or refinancing, locking in a fixed-rate mortgage now could shield you from future rate hikes.
- Prepare for Housing Affordability Challenges: Rising interest rates may worsen housing affordability, especially for first-time homebuyers and those renewing their mortgages.
- Get Pre-Approved: As lending criteria become stricter, getting pre-approved now can help you secure financing before tougher rules are in place.
- Prime Rate Reductions on the Horizon: Some banks expect prime rate cuts in the coming months, which could impact variable-rate mortgages. Keep an eye on these changes when choosing your mortgage type.
By staying ahead of these changes, you can better navigate the shifting mortgage landscape and secure a strategy that works for you in the long term.
