Mortgage rates are stuck in a rut. What could break them out?

Mortgage rates have been sluggish for months—hovering above 6.5 percent—keeping Canadian homebuyers on the sidelines and slowing market activity. A recent drop in the average U.S. 30‑year fixed rate to 6.58 percent, the lowest since October 2024, may offer a glimmer of hope, but rates remain stubbornly high by historical standards.

One key factor keeping rates elevated is long-term market expectations. Mortgage interest rates tend to track movements in the 10-year government bond yield more closely than short-term central bank decisions. Even if the Bank of Canada were to cut its policy rate soon, mortgage rates might not immediately follow—especially if bond yields remain high due to inflation worries.

Still, there’s some optimism that recent rate relief could boost activity. Mortgage bankers report increased refinancing activity, as homeowners chase lower payments. Applications for refinancing and adjustable-rate mortgages are up sharply, though purchases remain modest—pointing to cautious optimism among borrowers.

Another potential release valve is using home equity. Many owners—particularly those who locked in low rates a few years ago—are tapping their equity instead of refinancing to pursue renovations, home upgrades, or debt consolidation. These home-equity lines of credit are more sensitive to central bank moves and could ease mortgage pressure if they become cheaper.

A more structural solution gaining attention is “assumable mortgages.” These allow buyers to take over a seller’s existing mortgage—often at much lower rates. With millions of low-rate mortgages still in place, increasing awareness and availability of assumable loans could help unlock housing market gridlock and ease affordability pressures.

Despite these possibilities, analysts warn there’s no quick fix. Mortgage rate relief may be intermittent and closely tied to broader economic trends. Sustained breaks in the current rut may require a combination of falling bond yields, successful policy shifts, and more flexibility in financing tools like HELOCs and assumable mortgages.