The Bank of Canada held its overnight lending rate at 2.25% in its third announcement of 2026, extending its pause as policymakers weigh soft domestic data against renewed price pressures from the war in Iran. For borrowers, the decision keeps variable mortgage rates steady but comes against a backdrop of rising headline inflation and higher fixed mortgage costs.
Why the Bank Stayed on the Sidelines
March’s inflation report showed Canada’s annual CPI rising to 2.4%, up from 1.8% in February, largely because gasoline prices spiked after the Iran conflict disrupted oil supplies and pushed global crude benchmarks higher. While that moved headline inflation back above the Bank’s 2% target, most of the increase has been concentrated in the energy component rather than across the basket as a whole.
“The Bank of Canada has remained firmly on the sidelines in its latest rate announcement,” explains Penelope Graham, mortgage expert at Ratehub.ca. “The March inflation report, the first full month to show how the war in Iran is impacting gas prices, has given the central bank some temporary breathing room. While the headline number rose to 2.4%, back above the Bank’s 2% target, the increase was largely concentrated in the energy category, and early indications suggest core measures of inflation continue to improve.”
The BoC Governor, Tiff Macklem, has indicated the Bank will look through temporary, supply‑driven energy shocks as long as they do not become embedded in expectations or broader price‑setting.
At the same time, recent readings on GDP and employment have been soft, suggesting the Canadian economy is operating with growing slack. In a world without the Iran‑related energy shock, that backdrop would normally support further rate cuts rather than a prolonged hold.
- Related: Mortgage Rates Threw the Spring 2026 Market a Curveball. Here’s What Happened in March: CREA
Fixed vs. Variable: What Borrowers Face Now
Even without further rate hikes, fixed mortgage rates have already risen this spring as bond yields have climbed. The best nationally advertised 5‑year insured fixed mortgage rates have increased by roughly 25 to 40 basis points since mid‑March, moving from around 3.79% at the start of the month to roughly 4.04% today. Graham notes that this reflects elevated Government of Canada 5‑year bond yields, which have been hovering near the 3% mark and putting sustained pricing pressure on lenders.
Variable mortgage rates, which move with lenders’ prime rates and track the Bank of Canada’s policy rate, remain lower than comparable fixed terms. Ratehub.ca’s tables show the lowest nationally available 5‑year variable rate at around 3.35%, compared with roughly 3.9–4.1% for the most competitive 5‑year fixed rate.
“Variable mortgage rates continue to offer the best available value, with the lowest five‑year term currently around 3.35%,” Graham says. “For risk‑tolerant borrowers, this can provide meaningful savings – but anyone considering a floating rate should heed the possibility that rates could rise again before the year is through, and either have the budgetary room to absorb such increases, or a plan to break or convert their mortgage term if needed.”
Rather than trying to time the market, Graham recommends strategy over prediction. For anyone shopping for a mortgage or coming up for renewal, she recommends locking in a pre‑approval and rate hold as soon as possible, which can provide up to 120 days of protection against market volatility with many lenders.
A Stark Reminder from Parliament Hill
While rate movements dominate the headlines, a pointed reminder of Canada’s deeper affordability challenge came recently from the House of Commons Standing Committee on Finance. Mortgage broker Ron Butler, one of the industry witnesses called before the committee, did not mince words about how far homeownership has drifted out of reach for ordinary Canadians.
Butler told MPs that even a household earning in the $110,000 to $115,000 range can struggle to realistically accumulate a down payment on a typical Toronto home, or qualify under today’s stress‑test rules. Prices in the GTA remain just under $1 million even after sizable declines from their peak, he noted, and first‑time buyers in Ontario and British Columbia are now largely absent from his practice.
“The biggest change of the 30 years I’ve been in the mortgage business is that much more normal salaried people could buy houses 30 years ago,” Butler said. “It was quite normal for the produce manager at a grocery store and a part‑time nurse to buy a home and comfortably manage it. Those days are gone.”
His testimony is a reminder that rate decisions, while consequential, cannot close a gap that has been decades in the making. Even with borrowing costs well below their 2023 peaks, the income‑to‑price disconnect in Canada’s major urban centres remains historically wide, leaving many would‑be buyers on the sidelines.
Finding Opportunity in a Tougher Market
With this in mind, Graham emphasizes that today’s hold, paired with clearer communication from the Bank, does give active buyers and renewing homeowners something they haven’t had in years: a more stable starting point for planning. With policy rates on pause, borrowers can focus less on guessing the next headline move and more on finding the right product, term length, and lender fit for their situation.
“For anyone who is prepared, today’s environment can still offer opportunities,” she says. “If you understand your budget, lock in a rate hold, and stay flexible on what and where you buy, you can use this period of slower sales and cautious sentiment to your advantage.”
Considering a move in 2026? Browse thousands of listings on Zoocasa and explore what’s possible in today’s market.
