Key Takeaway: In December 2025, the Bank of Canada held its target overnight rate steady at 2.25%, keeping borrowing costs unchanged after a period of rate adjustments. Variable-rate mortgage holders saw no immediate change to their monthly payments, while fixed-rate shoppers continued to face rates shaped by bond market expectations rather than the central bank’s direct moves.

The December 2025 Rate Decision

The Bank of Canada announced in December 2025 that it would maintain its policy interest rate at 2.25%, signalling confidence that inflation remained under control without requiring further monetary tightening. According to the Bank of Canada, the decision reflected balanced risks between supporting economic growth and keeping inflation near the 2% target.

The policy rate, also called the overnight rate, determines the interest rate at which major financial institutions borrow and lend one-day funds among themselves. When the Bank holds this rate steady, it directly affects the prime rate that Canadian lenders use as the foundation for variable-rate mortgage pricing.

What the Rate Hold Meant for Variable-Rate Mortgages

Borrowers with variable-rate mortgages saw no change to their interest costs following the December 2025 announcement. Variable-rate mortgages in Canada are typically priced as prime rate minus or plus a spread (for example, prime minus 0.50%). When the Bank of Canada holds its policy rate, the prime rate at major banks stays put, and so does the interest portion of variable-rate mortgage payments.

If you held a variable-rate mortgage in December 2025, your monthly payment remained the same unless your mortgage was structured as an adjustable-rate mortgage (where payments fluctuate with rate changes) rather than a variable-rate mortgage with fixed payments (where more or less of each payment goes toward principal depending on rate shifts). As covered in foundational texts such as Principles of Macroeconomics 3e, central bank policy rates are a primary lever for managing economic activity and inflation through the cost of borrowing.

Impact on Fixed-Rate Mortgages

Fixed-rate mortgages operate on a different mechanism. Lenders price fixed-rate terms based on Government of Canada bond yields, not directly on the Bank of Canada’s policy rate. While the policy rate influences the broader economy and can indirectly affect bond markets, fixed mortgage rates had already adjusted in the months leading up to the December 2025 announcement based on market expectations of where rates were headed.

Read also: The Bank of Canada Rate Hold and Housing Market Uncertainty in Canada

For Canadians shopping for a new fixed-rate mortgage or approaching a renewal in late 2025 and early 2026, the December rate hold did not trigger an immediate drop in fixed rates. Instead, fixed rates reflected what bond markets anticipated the Bank would do over the following months and years. According to the Financial Consumer Agency of Canada, fixed-rate terms lock in your interest cost for the duration of the term (commonly one to five years), shielding you from future rate increases but also preventing you from benefiting if rates fall.

What Borrowers Should Consider

If you had a variable-rate mortgage in December 2025, the rate hold meant predictable costs in the near term. However, you remained exposed to future rate changes whenever the Bank of Canada adjusted policy again. For borrowers approaching a mortgage renewal between late 2025 and 2027, comparing variable and fixed options remained essential. Variable rates were generally lower than fixed rates at that time, but they carried the risk of increases if economic conditions shifted.

For first-time buyers and those refinancing in late 2025, the December rate environment offered relatively stable borrowing costs compared to the volatility seen in prior years. As always, you needed to qualify under the OSFI mortgage stress test, which required proving you could afford payments at a rate higher than your actual contract rate.

Next Steps

If your mortgage term was ending in 2026 or 2027, review your current rate and compare renewal offers from your existing lender against rates available from other institutions. Mortgage rates, terms, prepayment privileges, and penalties vary significantly by lender and by your personal financial profile, so confirm the details that apply to your situation with a licensed mortgage broker or your financial institution before deciding.

Disclaimer: This article provides general educational information about the Bank of Canada’s December 2025 rate decision and its implications for Canadian mortgages. It is not personalized financial, lending, legal, or tax advice, and it is not an offer or commitment to lend. Mortgage products, rates, eligibility, and terms vary by province, territory, lender, and your individual circumstances. Interest rates change frequently. For advice tailored to your situation, consult a licensed mortgage professional or your financial institution. The information presented here was current as of October 2026.