2026 Mortgage & Interest Rate Outlook

As we head into the end of 2025, many borrowers and investors are asking the same question:
Where are interest rates going in 2026, and how should we plan?

Below is a clear, combined view using:

• Dr. Sherry Cooper’s most recent economic commentary

• Forward CORRA and mortgage-rate forecasts from WOWA.ca

• Bond-market trends

• Practical mortgage and lending insights from the residential and commercial markets

1. Bank of Canada: Holding at 2.25% — and signaling stability

According to Dr. Sherry Cooper, the Bank of Canada has held the overnight rate at 2.25%, which sits at the bottom range of the neutral level — a rate that is neither stimulating nor cooling the economy.

Key insights from her commentary:

• Inflation is now hovering just above 2%.

• Core inflation remains between 2.5% and 3%.

• Domestic demand is soft and GDP growth is expected to remain weak into early 2026.

• U.S. growth is stronger, driven by consumer spending and AI-related investment.

• Uncertainty remains high due to US-Canada-Mexico trade friction (“CUSMA”).

Dr. Cooper summarizes the Bank’s stance clearly:
“The current rate is about right for the economic environment.”

This suggests the Bank is comfortable holding unless major economic forces shift.

2. Forward Rate Forecasts (WOWA.ca)

Source: https://wowa.ca/interest-rate-forecast

WOWA.ca’s forecast is based on forward CORRA (Canadian Overnight Repo Rate Average) and gives a data-driven look at where mortgage rates may land through 2030.

A few key numbers from the December 7, 2025 forecast:

December 2025

• BoC Rate: 2.25%

• Prime: 4.45%

• 5-yr Variable: 3.40%

• 5-yr Fixed: 3.79%

Mid–2026

• BoC Rate: 2.25%

• 5-yr Variable: 3.40%

• 5-yr Fixed: 3.96%

End–2026

• BoC Rate: 2.50%

• 5-yr Variable: 3.65%

• 5-yr Fixed: 4.06%

2027–2030 (gradual, upward drift)

• Variable rates: 3.9% → 4.4%

• Fixed rates: 4.1% → 4.6%

Interpretation:
The market expects:

• Variable rates to remain relatively stable through 2026.

• Fixed rates to gradually rise as bond yields normalize.

• No return to pandemic-era ultra-low rates.

3. Dr. Sherry Cooper on Bond Yields and Fixed-Rate Pressure

Even with the policy rate on hold, fixed rates continue to face upward pressure because they follow the 5-year Government of Canada bond yield.

Dr. Cooper notes that:

• The 5-yr bond yield is trying to push above 3%.

• The 2-yr bond is trading above the overnight rate — a warning signal.

• The Canadian dollar is strengthening, creating export challenges.

• Business and consumer confidence remain weak.

• Lenders have already raised fixed rates in anticipation of higher bond yields.

This means fixed-rate mortgages may fluctuate more than variable rates, even without Bank of Canada action.

4. Residential Market Commentary

Based on these forecasts and lender behavior:

Borrowers obtaining a mortgage in 2026 should consider:

• Shorter fixed terms (1–3 years) to maintain flexibility

• Variable rates for clients with strong cash flow and risk tolerance

• Hybrid strategies combining fixed + variable for balance

Refinances / Net-Worth Lending

• Lenders remain selective on higher-LTV refinances

• Strong net worth and liquidity still open doors

• 80% LTV refinances may require exceptions or enhanced income programs

CMHC-insured opportunities

CMHC MLI Select remains extremely attractive for:

• Purpose-built rentals

• Multifamily acquisitions

• Repositioning strategies

Many of these take-outs still price in the 3.8%–4.0% range, which is extremely strong.

5. Commercial Mortgage Outlook

Your commercial commentary summarized:

Condo development

• Still the most challenged asset class

• Requires strong sponsors and liquidity

• Many lenders are pausing or tightening criteria

Land development

• Conservative LTVs

• Heavy emphasis on equity, guarantees, and exit strategy

Purpose-built rental / CMHC

• Strongest asset class in the market

• Liquidity remains high

• Lenders prefer projects with clear capital stacks and feasibility

Construction financing

We are actively placing:

• Bridge-to-CMHC structures

• Construction-to-term pathways

• Senior/subordinate capital stacks

• Debt fund and private capital for higher leverage

The message for 2026 is clear:
Capital is available — but structure, equity, and sponsor quality matter more than ever.

6. Combined Rate Outlook for 2026

Most Likely Scenario

• BoC remains at 2.25–2.50%

• 5-yr fixed rates move between 3.9% and 4.2%

• Variables hold between 3.40% and 3.70%

• CMHC-insured take-outs land around 3.8%–4.0%

• Both residential and commercial markets stabilize

Downside Risk (Trade Shock / Inflation Resurgence)

• Bond yields rise

• Fixed rates climb toward 4.5%–5.0%

• GDP weakens

• Lending conditions tighten

Optimistic Scenario

• Inflation falls quicker than expected

• BoC cuts late in 2026

• Variable rates drift toward 3.0–3.3%

• Fixed rates settle into the 3.5–3.8% range

Final Thoughts

Both Dr. Sherry Cooper and the forward-rate markets are signaling the same conclusion:

Rates are stabilizing.
The worst is behind us.
The new normal is between 3.5%–4.5% depending on term and product.

For borrowers, this means:

• It’s a manageable environment.

• Predictability is returning.

• Long-term planning becomes possible again.

For investors and developers:

• The commercial capital markets are active.

• CMHC remains a powerful advantage.

• Strong sponsors with strong equity will find opportunities others miss.