What the Bank of Canadas Rate Hold Actually Means

Mortgage alphabet

What if everything we were told about interest rates and the real estate market in 2025 turns out to be wrong?

For buyers, sellers, and anyone renewing their mortgage in 2026, Canada's housing market looks completely different compared to last year, and economists broadly agree that the Bank of Canada is likely to hold its current course steady. "We're not expecting any action from the Bank of Canada," CIBC economist Benjamin Tal said in recent comments to clients. Mortgage rates, in his view, have likely already bottomed out. That's a far cry from last year's situation, when further cuts were widely expected, mortgage rates were assumed to be headed for a sharper decline, and the trade wars and related economic uncertainty stemming from President Donald Trump's policies were still hypothetical.

The Bank of Canada held its overnight rate at 2.25% at its most recent policy meeting (January 28, 2026), marking a third consecutive pause following cuts earlier in 2025. This decision signals that policymakers believe interest rates are now sitting at a level that can support growth without reigniting inflation - an economic factor affecting Canadians right across the country.

Why This Rate Pause Matters

Many economists had expected the Bank to hold rates steady in January 2026, given that the economy is still working through the effects of the ongoing, uncertain trade tariffs imposed by the current US administration.

In the Bank of Canada's previous rate announcement, Governor Tiff Macklem noted that more than six months had passed since Canadians learned to live with US tariffs. "US trade policy remains unpredictable... Considerable uncertainty persists around both US tariffs and their effects. The range of possible outcomes is wider than usual, and we need to exercise caution with our forecast. If the outlook changes, we're prepared to respond."

This time around, the Bank's reluctance to cut rates may reflect its confidence in the dynamics of the country's labour market. While Canada's unemployment rate rose to 6.8% in December, that increase was largely driven by a growing number of job seekers, rather than job losses.

This combination - cooling inflation alongside a resilient labour market - gives the Bank of Canada room to hold steady, rather than rushing into deeper rate cuts.

What This Means for Rates in 2026

For mortgage holders who were hoping for a quick round of rate cuts, this latest decision was a sobering signal. "Since current rates are expected to support growth and employment, the Bank has less incentive to cut rates further," Tal notes. "Given the persistent trade uncertainty and uneven underlying economic conditions, we're also not expecting any rate hikes over the course of 2026."

For borrowers, this points toward rate stability, rather than a return to ultra-low borrowing costs, as the more realistic base-case scenario for the cycle ahead.

In our office, we've seen steadily growing interest in variable-rate mortgages lately. Recognizing that rate stability is here to stay, banks have started increasing their rate discounts on these products. Some banks are now offering Prime -1.00%, which comes to 3.45% today for insured mortgages (down payment under 20%).

The 2026 Mortgage Renewal Wave

The Bank's decision to hold rates steady in January will affect just under a million Canadian borrowers, according to Canada Mortgage and Housing Corporation (CMHC) data. Per CMHC, more than a million mortgages were up for renewal in 2025-2026 - nearly a third of all outstanding mortgages in Canada. Keep in mind that many of these were taken out during the pandemic years, at extremely low rates.

With roughly 30% of all Canadian mortgages set to renew over the next two years, it's crucial for homeowners to think carefully about how current and upcoming economic decisions could affect their budget and their ability to manage payments. Our advice is not to simply accept the first offer your bank gives you, but to look at what's happening in the broader market and get advice from an experienced mortgage broker.

First-Time Buyers: Time Is Finally on Your Side

Market psychology has shifted significantly. Asking rents remain elevated in many markets, but average rents across the country hit a 30-month low in December. Combined with a high volume of supply and modest expectations for price growth, this is taking some of the urgency out of house hunting. "People aren't rushing, and that's a good thing," noted CIBC's Benjamin Tal. "This is a normal market, in contrast to a market that was in a state of panic until quite recently."

That calm matters especially in the condo market, where an oversupply, most pronounced in the Greater Toronto Area, has created a buyer's market that calls for strategic thinking. While prices in some markets may keep falling through 2026, Royal LePage CEO Phil Soper advises buyers to factor in the possibility of further value erosion when making an offer. "It's not complicated math. It's a bit of work with a spreadsheet."

In our own practice, we're seeing more and more self-employed first-time buyers entering the market. At today's price levels in the condo or small townhouse segment, they finally have a real shot at buying their first home with a minimal down payment, at the best possible interest rate.

Move-Up Buyers: A Price Decline Isn't Always Bad News

Phil Soper offers some comfort to homeowners rattled by falling property values - a price decline is actually a gift for anyone looking to buy a bigger, better home. If your market has seen prices correct across every segment, the price gap between your current home and your "dream" home actually shrinks. "Mathematically speaking, you come out ahead," he noted.

The Link Between Mortgage Rates and Payment Delinquency

Mortgage delinquency rates remain low by historical standards, but the pressure is building. CMHC data shows Canada's delinquency rate rose to 0.22% in the second quarter of 2025, with Ontario and British Columbia posting some of the steepest increases. According to Equifax Canada, missed mortgage payments rose 23.1% year-over-year as of the first quarter of 2025 - a sign that many households are still adjusting to higher interest rates. Now that rates have stabilized, the room to offer relief to borrowers already struggling may be more limited.

That said, thanks to the emergence of better mortgage rate discounts, we're now able to help many homeowners restructure or refinance their existing mortgages and improve their cash flow, until they're back on their feet and able to pay down their mortgages faster.