BoC Keeps Prime Rate at 4.95%—Smart Mortgage Moves to Make Now (June 2025)
- Neil Joseph
- Jun 4
- 5 min read
Welcome to the fourth edition of our Mortgage Newsletter for 2025!
After seven consecutive cuts, the Bank of Canada is holding steady—keeping its policy rate at 2.75% and the Prime Rate at 4.95%.
While some were hoping for another reduction, let’s not forget:
🟢 Since the peak of 7.20% last year, we’ve come a long way down.
💰 For borrowers with variable-rate mortgages or debt tied to Prime, that’s ~$1,000/month in savings on a $500,000 mortgage vs. May 2024.
But for now, the Bank is hitting pause—waiting to see how inflation, growth, and employment unfold.
🏦 What's keeping the Prime Rate steady?
🇺🇸 In the U.S.
Trump’s renewed tariff war is heating up: broken China deals, EU threats, higher steel/aluminum duties.
Despite the noise, markets had their strongest May in decades: +8–9% across major indices and just under 3% away from the highs hit earlier this year
Bond yields remain high and volatile, signaling investor caution.
April unemployment: 4.2%, Q1 GDP dipped (–0.2%) but Q2 looks stronger: +3.8% est.
US Fed is widely expected to remain on pause
🇨🇦 In Canada
Liberals return to power, boosting hopes for growth-oriented policy (but with higher government deficits).
Carbon tax slashed to 0%, helping cool pump prices—though core inflation >3% lingers.
Economic data is mixed:
April CPI: +1.7% YoY, but core measures are over 3%
Q1 GDP: +2.2% annualized
April Unemployment: 6.9%, but +31,500 full-time jobs offset part-time losses
So, what does all this mean for your mortgage and financial game plan? That’s what we’ll unpack below—along with smart next steps you can take.
Mortgage Market Insights: What's Changing?
📉 Bond Yields & Fixed Rates on the Rise
Since April, 5-year bond yields climbed:
· Apr 15: 2.677%
· May 20: 2.994%
· Jun 3: 2.862%
This has pushed fixed mortgage rates up by 0.05%–0.20%.
⚠️ Will Canadian bonds keep shadowing the U.S., even as our economy slows?
⚔️ Fixed vs. Variable – What’s the Better Bet?
· Fixed rates remain more competitive, though the margin is narrowing.
· Variable rates: Lender discounts are shrinking, reducing the benefit of further BoC cuts.
📌 Key takeaway:
Lower BoC rates in coming days don’t always mean a cheaper variable mortgage—especially for new borrowers.
What Should You Do?
Your best move depends on risk tolerance, cash flow needs, and timeline:
Scenario | Smart Option |
Want stability | ✅ Short-term fixed rate |
Can handle some risk | ✅ Variable could pay off |
Torn between the two? | ✅ Hybrid: part fixed, part variable |
2025 Rate Outlook:
Most economists forecast another 0.25%–0.50% drop in the Prime Rate before year-end. But don’t bet the farm—here’s what could shake things up:
1. Recession or worsening trade war → Faster BoC cuts
2. Inflation surge → Pause or even rate hikes
3. Geopolitical/election turmoil → More volatility, higher premiums
4. U.S. dollar instability → Canadian bonds could rise in sympathy
🚨 Bottom line: Stay flexible, stay informed, and revisit your mortgage strategy as conditions evolve, or go Fixed and sleep peacefully!
💬 Final Word: Flexibility Is Power
Today’s pause is your chance to reassess your mortgage strategy—before the next move. Want to explore your options? Let’s have a conversation tailored to your goals.
📩 Need a game plan? Let’s connect and craft a mortgage strategy that fits your goals.
Schedule meeting per your convenience here.
If you’re the type who likes to geek out on the numbers, we’ve got you covered—scroll down for detailed charts that reveal what the markets are really up to.
No crystal ball needed—just solid data. 📉🔍📈
For those unfamiliar with terms like Insured, Insurable, Uninsured, or Rental, a concise explanation is provided in note# 1 below.
Note: The rates indicated below are the most commonly available rates for Prime borrowers. Many Qualified borrowers secure a lower interest rate than depicted below due to superior credentials. Interest rates with B-lenders and Private mortgages are at a premium to these levels.
The charts above show the trend in interest rate (2) for Fixed Rate Mortgage types for the last 44 months. The rates have fallen by about 1.70% to 1.80% from their peak in October 2023. For the shorter term (1-3 year) Fixed rate mortgages, the premium over corresponding 5-year rates have continued to reduce (eliminated in the case of 3-year term). Fixed rates have increased by 0.5% to 0.15% since our last update.
Above chart shows the spread between the 5-year Canada Bond yield and 5-year Mortgage (Fixed rate). This spread has reduced from the levels we saw in 2022-23 and is in the 1.19% to 1.44% range. Spread has increased in the last 2 months from a range of 1.01% to 1.36% (higher for uninsured mortgages).
The charts above show the trend in interest rate (2) for Variable Rate mortgage types for the last 44 months. While the Prime Rate has not increased in the last couple of months, the discount from banks and lenders have reduced, leading to a slight increase in rates, about 0.10%.
A higher discount on the chart generally signifies a heightened demand for Variable Rate mortgages and low risk premium. It reflects the dynamic interplay between borrower preferences and the response of lenders to this demand. Conversely, a lower discount may indicate a market shift towards Fixed Rate products.
We're likely entering a phase where more borrowers may choose Variable Rate mortgages due to the potential for a Prime Rate reduction but the risk premium is also increasing given tariff and economic headwinds. As a result, the discount to Prime Rate is fluctuating month to month. We may not see a proportionate decline in new Variable Rate mortgages issued by lenders given the reducing discount.
Generally, Fixed rate mortgage rates are higher than their corresponding Variable Rate mortgages at the time of securing one but this relationship has been inverted for the last 30 months or so. However, given the steady drop in Prime Rate this gap has been reducing steadily. Variable rate mortgages are still at a slight premium to Fixed Rate (0.0% to 0.21%), higher for un-insured mortgages.and
1. Explanation of key terms
Insured – These mortgages are backed by a mortgage insurer like CMHC and borrower needs to pay an insurance premium. All properties purchased with less than 20% downpayment fall under this category and come with an amortization of 25 years (30 years for First Time Home Buyers / New Construction homes) or lower and purchase price cannot be higher than $1M ($1.5M for First Time Home Buyers).
Insurable – These mortgages require the borrower to have a downpayment of 20% or higher, amortization is restricted to 25 years or lower and purchase price cannot be higher than $1M.
Uninsured – These mortgages require the borrower to have a downpayment of 20% of higher but amortization can be 30 year or lower and purchase price can be higher than $1M.
Rental – These mortgages are specifically for Rental or Investment properties and need to have a downpayment of 20% or higher but come with amortization of 30 years (with most lenders) and purchase price can be higher than $1M.
2. Interest Rates depicted are those which are commonly accessible by most well-qualified borrowers with excellent credit and debt service ratios. Some borrowers might be able to secure an interest rate which is lower than these levels on account of superior qualification. Interest rates with B-lenders and Private mortgages are much higher than these levels.
留言