The Bank of Canada has once again held its overnight policy rate steady at 2.25%, a level widely considered to be at the lower end of the neutral range. In simple terms, monetary policy today is neither stimulating the economy nor restricting it. Inflation is hovering just under the Bank’s 2% target, with core inflation slightly higher, suggesting that—at least for now—the current rate environment is appropriate.

But while the headline decision appears stable, the broader story is anything but.

According to Dr. Sherry Cooper, the global backdrop has become increasingly complex. The ongoing conflict in the Middle East, particularly the disruption of energy supply routes, has led to a sharp rise in oil and natural gas prices. This has introduced renewed inflationary pressure at a time when central banks were beginning to feel more comfortable about price stability. At the same time, financial markets have tightened. Bond yields have risen, equity markets have softened, and credit spreads have widened.

Economic data closer to home is also showing signs of strain. Employment gains seen late last year have reversed, the unemployment rate has climbed, and exports remain weak. As Dr. Cooper notes, it is still too early to fully understand the economic impact of current geopolitical events, but the direction is clear: uncertainty has increased.

This uncertainty is echoed in insights from Bruno Valko, who points out that near-term economic growth is expected to be weaker than previously forecast. Canada’s GDP has already shown contraction, and while inflation eased earlier this year, rising energy costs and trade-related pressures could push it higher again in the months ahead. Central banks, including the Bank of Canada, are now in a position where future decisions could reasonably move in either direction.

For mortgage borrowers, this environment creates a disconnect that can be confusing at first glance. While the Bank of Canada has held its policy rate steady, fixed mortgage rates have been moving higher. This is because fixed rates are driven primarily by bond yields, not the overnight rate. With the Government of Canada’s 5-year bond yield approaching 3% and shorter-term yields already above the policy rate, lenders have begun adjusting fixed mortgage pricing upward.

In practical terms, this means that even in a “rate hold” environment, borrowing costs can still rise.

At the same time, housing market conditions have shifted significantly from their peak. National home prices have declined materially over the past few years—by roughly 20% in nominal terms and even more when adjusted for inflation. For many buyers, particularly those entering the market for the first time, this represents a meaningful improvement in affordability compared to the conditions seen in 2021 and early 2022.

All of this leads to the questions we hear every day: should you choose a fixed or variable rate, and is now the right time to act?

The honest answer is that there is no universal solution. The path of interest rates will depend on a combination of inflation trends, global events, and central bank responses—many of which are inherently unpredictable. What we can control, however, is how prepared we are for different outcomes.

In our view at Mainstream Mortgages, this is where the real conversation should be focused. Rather than trying to time the market or predict the next rate move, the priority should be ensuring that your financial position is resilient. That starts with having a clear and realistic household budget, one that accounts not only for today’s payments but also for the possibility of higher costs in the future.

It also means maintaining a meaningful level of savings. We typically recommend that clients aim to have between six and eighteen months of expenses set aside. This is not about being pessimistic; it is about giving yourself flexibility and peace of mind in an environment where conditions can change quickly.

Equally important is the decision not to overextend. Just because a lender approves a certain amount does not mean it is the right amount to borrow. In uncertain times, there is real value in leaving room in your budget, even if it means purchasing a more modest home or taking a more conservative approach.

Ultimately, the current mortgage landscape is defined by a combination of stability at the central bank level and volatility in the broader market. Fixed rates are responding to rising bond yields, variable rates remain tied to central bank policy, and economic conditions continue to evolve in real time.

There are opportunities in this market, particularly for those who are well-prepared and thinking long term. But those opportunities are best approached with a clear plan, a strong financial foundation, and a realistic understanding of risk.

This article incorporates insights from Dr. Sherry Cooper and Bruno Valko, along with data from the Bank of Canada and broader market sources.

If you’re considering your next move—whether that’s buying, refinancing, or renewing—our role is to help you navigate these decisions with clarity and confidence.