Mortgage rates at the end of 2025 in Canada have become a central factor affecting housing markets, including here on Vancouver Island. Understanding the current rate environment and how it influences buyer behaviour can help prospective homeowners make more informed decisions.
Where Mortgage Rates Stand Today
After several years of rate increases aimed at controlling inflation, the Bank of Canada has held its policy interest rate steady at 2.25 per cent as of December 2025. The policy rate directly influences lending rates and therefore mortgage pricing. Recent economic data, including modest GDP growth and inflation near the Bank’s 2 per cent target, has led policymakers to adopt a cautious stance on further cuts.
According to rate comparison data:
- The best available 5-year fixed mortgage rate in Canada is around 3.89 per cent.
- The best available variable mortgage rate is approximately 3.45 per cent.
These rates are significantly higher than the ultra-low levels seen during the pandemic (when 5-year fixed rates dropped below 2 per cent), but notably lower than peak rates seen in 2023.
Why Rates Matter for Buyers
Mortgage rates affect affordability directly. Higher interest rates increase monthly payments and reduce the amount buyers can borrow for the same budget. Even when rates fall, as they have since mid-2024, they remain above the extraordinarily low pandemic era. This has a few important effects:
1. Buyer Caution and Rate Uncertainty
Many Canadian buyers hesitate to enter the market or lock in a mortgage when they’re unsure how rates might move next. While the Bank of Canada paused rate cuts late in 2025, forecasts suggest a cautious path forward with potential future adjustments dependent on inflation and global economic trends.
This uncertainty influences people’s decisions, some hold off buying, while others push ahead to secure financing before potential future rate increases.
2. Shift in Borrower Preferences
Data from the Canada Mortgage and Housing Corporation (CMHC) shows that in 2025, borrowers began shifting back toward fixed-rate mortgages, particularly 3- to 5-year terms, as a way to lock in predictable payments amid rate unpredictability.
For borrowers on Vancouver Island, fixed-rate products offer more stability given ongoing questions about future policy movements and economic headwinds.
Behavioural Impacts on the Housing Market
The rate environment has also influenced broader buyer behaviour:
- Renewal Anxiety: With many existing mortgages set to renew over the next few years, some homeowners are feeling pressure as their low pandemic rates expire. CMHC reports that around 60% of mortgages will renew in 2025 or 2026, and most will see increased payments. Although often smaller than previously expected against earlier rate forecasts.
- Demand Shifts: Elevated rates have contributed to subdued resale activity in some major Canadian markets, with national existing home sales still below long-term averages despite modest upticks in mid-2025.
- Market Cautiousness: Consumer sentiment about mortgage rates is mixed. In recent surveys, most Canadian mortgage consumers anticipate home prices rising, but only about one-third expect rates to fall, with similar shares expecting them to stay stable.
What This Means for Buyers Now
So what do these trends mean if you’re thinking about buying?
- Affordability remains a key concern, meaning buyers should talk with mortgage specialists about current rates, term options, and how best to structure repayments.
- Fixed-rate mortgages are regaining popularity as buyers seek payment stability in a still-uncertain rate environment.
- Market patience matters. With rates unlikely to plummet back to pandemic lows, strategic planning, including budgeting for mortgage rate renewal, is essential.
While mortgage conditions continue to evolve, being informed about the current environment and buyer behaviour trends will help you navigate the market with confidence.
