So what does this mean if you’re looking at buying a home, renewing, or refinancing your mortgage in 2025?
How Do Tariffs Influence Mortgage Rates?
A tariff is basically a tax placed on goods that cross borders. When the U.S. slaps tariffs on Canadian imports—like steel and aluminum—American companies pay more, and those higher costs trickle down to consumers. Canada sometimes responds with tariffs of its own, which means higher prices here, too.
This type of disruption drives inflation in unusual ways. Normally, inflation rises when demand is hot, and the Bank of Canada cools things off by raising interest rates. But tariffs create “cost-push” inflation, where prices rise simply because goods cost more to bring in. That puts the Bank of Canada in a tough spot – they can either raise rates to fight inflation and risk a recession, or cut rates to keep the economy moving.
The Influence of Tariffs On Variable Mortgage Rates
Variable mortgage rates are directly tied to the Bank of Canada’s policy rate. When the Bank raises or lowers its rate, lenders adjust their prime rate, and your variable mortgage usually shifts along with it.
If tariffs weaken Canada’s economy, the Bank of Canada may lower rates to encourage borrowing and spending. In that case, homeowners with variable mortgages could see their monthly payments drop or pay down more principal if they have fixed-payment variable loans. This could make variable mortgages attractive for borrowers who are comfortable with a bit of uncertainty and want to take advantage of potential savings.
On the other hand, if tariffs keep inflation high, the Bank may have no choice but to hold off on cuts or even pause rate reductions for longer than expected. That would leave variable mortgage rates higher, which can add pressure to household budgets. In 2025, variable mortgages could be rewarding for some homeowners, but they also come with more risk.
How Fixed Mortgage Rates Are Affected
Fixed mortgage rates, especially the 5-year fixed, don’t move directly with the Bank of Canada’s rate. Instead, they’re influenced by government bond yields, which are shaped by investor confidence, inflation expectations, and global events like trade disputes.
If investors see tariffs hurting the economy, they may flock to safer investments such as government bonds. That usually drives bond yields down, which can lower fixed mortgage rates. For homebuyers or those renewing, this could mean locking in a historically low fixed rate for long-term stability.
But if inflation sticks around because of higher import costs, bond yields could rise. That would push fixed mortgage rates higher, making it more expensive to lock in for five years or more. Fixed mortgages are often the go-to for homeowners who want predictable payments and peace of mind, but in 2025, they could end up costing more if tariffs keep inflation in play.
Variable or Fixed, Which is The Right Choice? How Working With a Mortgage Broker Helps You Decide
In times like these, it’s hard to predict whether fixed or variable is the smarter choice. That’s where a mortgage broker becomes invaluable. A broker keeps track of how economic news, like tariffs, influence mortgage rates in real time. They can explain your options in plain language and help you choose the right mortgage strategy for your situation whether that means locking into a fixed rate for security or going variable to take advantage of potential savings.
How Will Tariffs Influence Mortgage Rates For You? Call Me Today And Let’s Figure Out The Right Solution For Your Financial Situation
Trump’s tariffs add another layer of uncertainty to the Canadian economy in 2025. That uncertainty flows directly into mortgage rates, making it harder to know which way they’ll move. Variable rates could become cheaper if the Bank of Canada cuts rates to support the economy, while fixed rates could rise if inflation lingers or fall if markets expect a slowdown.
Although no one can predict exactly where things will land, as a certified mortgage broker I can help you make an informed decision and choose the fixed or variable option that fits your budget and long-term goals. Book a free consultation at 705-315-0516 or sign up online to get started.