How the Bank of Canada’s first 2026 rate update could affect mortgages and the housing market
The Bank of Canada meets Jan. 28. After holding the policy rate at 2.25 per cent in December, economists say cuts remain possible later in 2026, with implications for mortgages.
Copy link
By Torontoer Staff
The Bank of Canada will deliver its first policy announcement of 2026 on Jan. 28. The central bank left its key policy rate at 2.25 per cent in December, and markets are watching for signals about the timing of possible rate cuts later this year.
The December decision referenced slowing inflation in October, when annual consumer price inflation was 2.2 per cent. Subsequent monthly data showed headline CPI rising to 2.4 per cent in December, up from 2.2 per cent in November, leaving the bank cautious but attentive to underlying trends.
What the Bank of Canada has said
In its December communication the Bank reiterated that, if inflation and economic activity evolve broadly in line with its October projection, Governing Council views the current policy rate as roughly appropriate to keep inflation close to its 2 per cent target while allowing the economy to adjust. The bank also warned that uncertainty remains elevated and that it is prepared to respond if the outlook changes.
If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2 per cent while helping the economy through this period of structural adjustment.
Bank of Canada
Why some experts expect cuts later in 2026
Economists and mortgage specialists say the Bank’s language in October and December set the stage for a prolonged pause, and recent data have strengthened that view. Ratehub.ca mortgage expert Penelope Graham points out that while headline inflation showed a modest uptick in late 2025, the bank’s preferred core measures improved, signalling cooling underlying price pressures.
The Bank established in October that it would hold rates for an extended period, and the December data doubled down on that. Core measures improving suggest underlying inflation is showing signs of cooling, even if headline numbers remain a bit stubborn.
Penelope Graham, Ratehub.ca
If core inflation continues to ease and economic activity weakens, the central bank could move toward rate cuts later in 2026. Timing will depend on incoming data on employment, wage growth and consumer spending, and on how global conditions evolve.
How this affects mortgages and the housing market
The housing market finished 2025 with mixed signals. Sales picked up month to month in the second half of the year, but activity for 2025 remained low overall. Both Toronto and Vancouver saw sales fall to levels not seen in about two decades, a result of weakened buyer confidence during a period of elevated economic uncertainty.
Consumers report elevated anxiety about costs, including the effects of tariffs on prices and spending. That caution has kept many potential buyers on the sidelines even as some mortgage rates have come down.
Borrowers already benefited from cuts through 2024 and 2025. Five-year variable mortgage rates can now be found around 3.45 per cent, while some insured five-year fixed options are priced below four per cent, with top offers near 3.84 per cent. Those rates are a marked improvement from the highs seen in 2022 and early 2023.
Practical steps for mortgage holders and home shoppers
- Check your renewal date and start the process early. Market conditions can change between renewal notices and your actual switch date.
- Compare fixed and variable products. Small differences in rate can add up to large savings over five years.
- If you have a pandemic-era fixed rate that was unusually low, get multiple renewal quotes. Even a few basis points matter.
- Consider working with a mortgage broker if you want a broader view of available products and special promotions.
- Keep a buffer in your budget for potential rate moves, especially if you are on a variable or adjustable product.
- Monitor upcoming economic releases and the BoC announcement on Jan. 28, as the bank’s guidance will influence lender pricing.
For prospective buyers, modestly lower rates can improve affordability, but local inventory, prices and buyer confidence will determine how much of a difference that makes in practice. Sellers should factor in continued caution among buyers when setting expectations for timing and price.
What to watch on Jan. 28
Expect the Bank of Canada’s statement to reiterate its assessment of inflation and the economy, with attention on any change in language about the timing of rate cuts. The bank will also release an interest rate decision alongside a brief policy statement, and markets will parse both the words and any updated economic projections.
If the central bank signals that the data support an easing path, mortgage rates could ease further over the coming months. If it emphasises upside inflation risks or persistent demand, lenders may keep pricing cautious and hold rates where they are.
Stay informed, compare your options and treat the Jan. 28 announcement as one important data point among many when planning mortgage decisions in 2026.
Bank of Canadamortgagesinterest rateshousing marketpersonal finance
