Canadian Mortgage Rates Set To Rise As Yields Soar On Inflation Data

Canadian homeowners and buyers are facing tougher times after recent inflation figures came in stronger than expected. Government of Canada bond yields, particularly the five-year yield, shot up quickly following the inflation report. That shift wiped out nearly all the progress mortgage rates had made earlier this year.

When bond yields rise, fixed-rate mortgage rates tend to follow. Canada's five-year yield jumped by about 7.5 basis points in one trading session and added another 10.9 basis points after the inflation news. That put the five-year yield at roughly 2.96 percent by midday—an increase of over 18 basis points compared to last week’s close.

Fixed mortgage rates usually incorporate a margin above government bond yields to cover lender costs and risks. That margin is often between 150 and 200 basis points. Based on current bond levels, five-year fixed mortgage rates are likely to land somewhere between 4.46 percent and 4.96 percent depending on the lender and competition in the market.

Despite expectations that inflation would ease after a recent cut to the consumer carbon tax, the Bank of Canada’s preferred core inflation measurements actually accelerated. Both key core metrics have climbed above the bank’s target range, suggesting inflation remains persistent rather than temporary.

As inflation shows no signs of cooling, bond yields are expected to continue rising. If that trend holds, fixed mortgage rates will likely escalate further. This shift erases earlier gains seen in 2025, leaving mortgage costs slightly higher than at the start of the year.

Rising mortgage rates add pressure not just on new buyers, but also on those renewing adjustable-rate or variable mortgages, which dominate in Canada. Many borrowers will need to prepare for bigger payments soon. Meanwhile, household debt levels remain high, amplifying financial strain across the country.