Posted on March 28, 2025 Category: News

Helping Everyone Navigate the 2025 Market

2025 interest rates

Understanding mortgage rates is a key ingredient for those looking to buy or sell a home in the current era of rapidly unfolding history. The following is a breakdown of current trends, future projections, and how economic and political factors could impact the housing market in 2025.

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Recent Trends in Mortgage Rates

• Bank of Canada’s Rate Adjustments:

On March 12, 2025, the Bank of Canada (BoC) reduced its key policy rate by 25 basis points to 2.75%. This marks the seventh consecutive cut aimed at addressing economic uncertainties, particularly due to trade tensions with the U.S.
Looking ahead, forecasts suggest that the BoC may further lower the policy rate another 50-75 basis points by the end of 2025 to between 2% and 2.25%. However, there is heavy reluctance by the BoC who only wants to continue to lower the rate if absolutely necessary. Therefore, this projection is subject to change based on a series of complex global economic factors.

• Impact on Borrowers:

While rate cuts typically lead to lower borrowing costs, some recent reductions have paradoxically driven up mortgage costs. This is due to rising inflation expectations (people expect inflation to rise, which can drive up costs) and increased bond yields (the return on government bonds, which impacts long-term borrowing rates, has gone up).
When bond yields rise, it generally leads to higher borrowing costs because mortgage rates are often linked to bond yields. So, even though the Bank of Canada cut its rate, the rise in bond yields and inflation expectations has caused mortgage lenders to raise their rates, making borrowing more expensive for consumers.

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Economic Outlook

Resilient Economy: The Canadian economy displayed strong growth in late 2024, bolstered by consumer spending and rising business investments. This strong foundation gives confidence for continued growth into 2025 despite a turbulent start to the year.
Fixed Mortgage Rate Projections: The British Columbia Real Estate Association (BCREA) forecasts the average uninsured five-year fixed mortgage rate to be around 4.35% throughout 2025.

Mortgage Rate Forecasts

Prime Rate Expectations: Analysts predict the prime rate may reach 4.95% by mid-2025. For homebuyers, this means that a monthly payment of $2,880 amortized over 25 years would result in $1,930 being allocated to interest; leaving only $950 left to pay towards the principal each month.
Scotiabank’s View: Scotiabank believes the Bank of Canada may have finished its rate-cutting cycle, signaling that no further reductions are expected.

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Political and Global Factors

The future of mortgage rates is closely tied to global trade and political dynamics. Potential—continued and expanded—U.S. tariffs on Canadian imports, along with possible retaliatory measures from Canada, could create economic volatility, influencing mortgage rates and lending conditions. Although Canada’s economy remains strong, these geopolitical uncertainties should remain top of mind for buyers and sellers.

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Implications for Home Buyers and Sellers

For Buyers:

With mortgage rates expected to stay relatively stable, now could be an ideal time to lock in a favorable rate.
Buyers should stay proactive by seeking pre-approval and keeping informed on their purchasing power.
Consider securing a fixed-rate mortgage to guard against any potential rate increases in the future.

For Sellers:

The combination of a stable economy and steady mortgage rates makes this an excellent time to list a home.
Sellers should anticipate shifts in buyer demand as mortgage rates fluctuate and adjust pricing strategies accordingly.
Properly marketing a home and working with experienced real estate professionals can help attract motivated buyers and maximize exposure.

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Final Thoughts

While the economic outlook for 2025 is optimistic, mortgage rates remain susceptible to changes driven by global political factors. Whether you're buying or selling, staying informed on these trends, seeking strategic guidance, and preparing for potential shifts will help you make confident decisions in this ever-evolving market. Be proactive, stay informed, and make decisions that will benefit you in the long term.