If you have a renewal coming up this year, or you're thinking about buying, here's a straightforward look at where rates stand and what to expect for the rest of 2026.
The Bank of Canada Is Holding Steady
The overnight policy rate is sitting at 2.25%, and the Bank held it there at its April 29 meeting. Bond markets are pricing in very little chance of a move at the June 10 announcement either.
The situation right now is a bit of a two-sided puzzle. The domestic economy is soft — GDP contracted in the fourth quarter of 2025, and unemployment is sitting in the 6.5% to 7% range. At the same time, energy prices are pushing inflation higher, with headline inflation potentially peaking near 3% this spring. Governor Tiff Macklem has been unusually direct: both cuts and hikes are on the table depending on how trade and energy risks play out. That's a different message than Canadians have heard in a while.
The short version: rate cuts are not a reliable rescue plan for 2026, but a significant hike isn't the base case either.
Why Fixed and Variable Rates Don't Move in Sync
This distinction matters a lot right now.
Variable rates track the Bank of Canada's overnight rate almost directly. When the Bank moves, lenders adjust their prime rate, typically within a day. With the policy rate expected to hold at 2.25%, variable rates should stay relatively flat for now.
Fixed rates work differently. They're tied to Government of Canada bond yields, which respond to global markets, inflation expectations, and investor sentiment — sometimes long before the Bank of Canada does anything. Five-year bond yields are forecast to climb from around 2.80% at the start of the year to as high as 3.70% by year-end. That means fixed mortgage rates could drift upward gradually even if the Bank of Canada never moves its policy rate.
If you're weighing fixed versus variable right now, that's the key thing to keep in mind.
The Renewal Crunch: What the Numbers Look Like
About one in three Canadian mortgage holders is expected to face higher monthly payments by the end of 2026. Most of them locked in at pandemic-era rates and are renewing for the first time since borrowing costs started rising in 2022.
How much things change at renewal depends a lot on what kind of mortgage you have:
| Borrower Type | Expected Payment Change at Renewal |
|---|---|
| 5-year fixed (majority of renewals) | Average increase of ~20% |
| Variable-rate adjustable (ARM) | Many will see modest relief |
| Variable-rate (VRM, negative amortization) | Some facing increases of 40%+ |
| Variable-rate (VRM, payments kept current) | Some could see payments drop ~7% |
The wide range for variable-rate borrowers comes down to one thing: how payments were managed during the rate hike cycle. Borrowers who kept their payments high enough to cover both principal and interest throughout are in much better shape than those who let negative amortization accumulate. If you're not sure which category you're in, that's worth finding out well before your renewal date arrives.
What the Forecasts Are Saying
Here's a consolidated view of where economists are landing for the rest of 2026:
| Forecast Item | Current Level | End of 2026 Expectation |
|---|---|---|
| Bank of Canada policy rate | 2.25% | 2.25% (consensus); up to 2.75% (two outlier forecasts) |
| GoC 5-year bond yield | ~2.80% | Up to ~3.70% |
| Fixed mortgage rates | Stable | Modest upward drift possible |
| Variable mortgage rates | Stable | Unchanged unless BoC moves |
The overall picture is stability, not drama. But stability at current levels still means meaningfully higher payments for anyone who locked in during 2020 or 2021. That gap is real, and it shows up on your monthly budget whether or not the headlines feel alarming.
What This Means If You're Renewing or Buying
If your mortgage is renewing in 2026, the most useful thing you can do right now is work out the actual numbers before your renewal date lands. A 20% average payment increase sounds abstract until you put your specific mortgage balance against it. We can help you run those numbers before you're making decisions under a deadline.
If you're buying, the rate environment is more stable than it was two years ago, but fixed rates could edge higher as the year goes on. Getting pre-approved and locking in a rate hold sooner rather than later is worth considering.
If you already have a variable rate and you've kept your payments covering principal and interest throughout the rate hike cycle, you're likely in better shape at renewal than you might think.
The takeaway: rates aren't dropping significantly in 2026, and for a lot of borrowers, renewal is going to mean higher payments regardless of what happens next. The best move is to plan ahead and know your specific numbers before you're reacting under pressure.
