August 2025 Mortgage Rate Forecast: Are Rate Cuts Finally Coming?

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Canada eyes rate cuts as inflation cools—will mortgage rates finally drop in 2025? Here’s what borrowers and homebuyers should expect.

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Introduction

After more than two years of steep borrowing costs, Canadians are wondering if mortgage relief is finally on the horizon. With inflation easing and the economy showing signs of fatigue, August 2025 brought renewed hope that the Bank of Canada (BoC) might finally deliver more rate cuts. But will mortgage rates actually drop — and how soon?

The State of the Economy

By mid-2025, the BoC’s policy rate had been reduced to 2.75%, marking its first series of cuts since the 2022–23 inflation surge. Economists and major lenders began forecasting another 25 to 50 basis-point reduction before year-end.
While inflation trended closer to the 2% target, the central bank remained cautious — watching wages, employment, and global commodity prices before making its next move.

Mortgage Rates in August 2025

• Average 5-Year Fixed Rate: ~5.10%

• Average Variable Rate: ~4.45%

• Prime Rate: 4.70%

Fixed-rate mortgages stayed stubbornly high because lenders price them based on government bond yields, which had not fallen as quickly as expected. Variable-rate borrowers, however, were poised to see gradual relief as banks adjusted their prime lending rates in response to BoC policy changes.

What’s Driving the Outlook

Several factors are shaping mortgage forecasts heading into the final quarter of 2025:

• Inflation cooling: Core inflation hovering near 2.4% signals stability.

• Weaker job growth: Employment softness supports a more dovish stance.

• Global uncertainty: Slower U.S. growth and trade tensions keep the BoC cautious.

• Housing affordability pressure: The government and central bank remain mindful of homebuyers’ strain from renewals at higher rates.

Will Rate Cuts Finally Arrive?

Most economists agree: Yes, but modestly.
The consensus calls for the BoC to trim the overnight rate to 2.25% by year-end, with the first move expected before fall. That would ease variable mortgage rates into the low-4% range, while fixed rates could follow—albeit more slowly—as bond yields react.

For borrowers, this means the worst of the rate-hike cycle may be over, but a return to ultra-cheap mortgages (below 3%) remains unlikely anytime soon.

What Borrowers Should Do Now

• Renewing soon? Ask your broker about early renewal or short-term fixed options.

• Buying a home? Get pre-approved now to lock in before further market movement.

• Holding a variable? Stay patient; gradual savings will appear over the next few quarters.

• Considering a refinance? If you’re consolidating high-interest debt, this is an ideal window as rates trend lower.

Final Thoughts

Canada’s mortgage landscape is finally shifting after years of rate hikes. While August 2025 brought optimism about rate cuts, the adjustment will be gradual — not dramatic. For homebuyers and homeowners alike, the smartest move is to stay informed, compare products, and work with a mortgage professional who can tailor a strategy that aligns with where the market is heading.