How could US tariffs impact Canadian mortgage rates?

This post was originally published on March 6, 2025, and was updated on April 3, 2025.

After more than two months of uncertainty – and unprecedented hostility – around U.S.-Canada trade relations, more clarity was received on April 2nd on the form and size of American-imposed tariffs on Canadian and global imports. 

In a press conference held at 4 p.m. EST, U.S. President Donald Trump announced the U.S. would impose 50% reciprocal tariffs on a slew of countries with U.S. trade surpluses, to take effect on April 9th, along with a 10% baseline tariff for all American trading partners, coming into force on April 5th. Canada, however, was exempt from the reciprocal tariff list; the current tariff structure will instead remain in place. This exempts goods covered by the Canada-United-States-Mexico Agreement (CUSMA), with a 25% levy staying in place for non-CUSMA imports. Canada will also be subjected to Trump’s blanket 25% tariff on foreign autos and parts, and the 25% tax on steel and aluminum products that went into effect on March 12.

Canada’s tariff response remains in force; an in-kind 25% tariff on $30 billion of American goods, which went into effect on March 4th, and a second retaliation on an additional $29.8-billion worth of goods, which took effect on March 13. A retaliatory 25% tariff on U.S.-made autos and parts is currently pending.

While Canada’s exemption from the reciprocal tariffs offers some small relief for our economy, that the U.S. has escalated the trade war more widely than expected has sent global markets into a tailspin. Futures for the big three U.S. markets – the S&P 500, Dow Jones Industrial Average, and Nasdaq – had all plunged before the opening bell on April 3rd. Overall, CNN reports that “extreme fear” is driving the stock market, with the S&P now down 5% year to date, and heading for its worst quarter since September 2022.

That’s being heavily felt in the bond market. The U.S. 10-year Treasury yield, which acts as a benchmark for global debt prices, dropped by nearly 20 basis points overnight to 4.04%, reports BNN Bloomberg, before recovering to 4.11% by market open.

Government of Canada bond yields came along for the ride, falling to 2.488% by publish time on April 3rd – a low not seen since April 2022. This puts heavy downward pressure on fixed mortgage rates, which have already been deeply discounted in recent weeks.

Here’s what today’s borrowers should consider.

Fixed mortgage rates are set to drop

The silver lining of tariffs and their market upheaval is that it’s pushing bond yields, and by extension, fixed mortgage rates, back down to lows not seen in three years.

This is because investors are increasingly worried of an impending recession in both Canada and the United States, along with a helping of stagflation; when inflation rises despite poor economic growth. Inflation expectations are on the rise in both countries and while the latest Canadian GDP numbers proved stronger than expected, growth is expected to chill rapidly once the February numbers are in.

That’s made so-called “save haven” investments – such as Canadian government bonds – all the more attractive. Canada’s five-year government bond yields – which lenders use to price their fixed mortgage rates – have been inching downward in tandem with tariff announcements, dropping to 2.57% on April 1st, and hovering in the upper end of that range on April 2nd, in the hours leading up to the announcement.

As a result, lenders have indeed gotten more competitive with their fixed mortgage rates; among the best deals in Canada is a five-year fixed rate for insured borrowers at 3.74% – again, a low not seen since the summer of 2022 – and a 3.99% option of uninsured borrowers.  For those looking to lock in, or are coming up for renewal, those present some of the most attractive fixed borrowing costs in some time.

What's next from the Bank of Canada?

Originally, it was economists’ opinion that the central bank would be forced to cut its trend-setting Overnight Lending Rate – which underpins the pricing for variable mortgage rates – by more than expected, perhaps to as low as 1.5%, in order to combat the effects of a tariff-induced recession. 

But the BoC itself has thrown cold water on rate cut expectations. In the Summary of Deliberations, which breaks down the Governing Council’s March 12th rate announcement decision, the BoC makes it clear that they would have held rates steady if it hadn’t been for the economic damage caused by tariff uncertainty. 

In various speeches, BoC Governor Tiff Macklem has also stated that the central bank’s rate policy alone can’t counter a trade war, and would need to be accompanied by fiscal measures, such as government spending. He has also clarified that given the current uncertainty, the Bank will be less forward looking than usual, meaning it will react to what’s happening with tariffs in the short term.

Currently, the bets are leaning toward a rate hold in the BoC’s next announcement on April 16th, though the Bank will be keeping a close eye on the evolving global economy, slowing conditions in the U.S., and on Canadian growth and inflation.

How will tariffs impact the housing market?

In a non-tariff scenario, all signs had pointed to a brisk spring season for Canadian real estate; lower mortgage rates, combined with pent-up demand had even prompted the Canadian Real Estate Association to revise their forecast for the year, calling for sales to increase 8.6% in 2025, compared to 6.6%. The national average home price was set to increase by 4.7%, to $722,221. 

However, tariff fears have thrown a deep chill on housing market demand. The most recent February data from the Canadian Real Estate Association showed sales plunged 10.4% year over year and 9.8% from January, the lowest level in transactions since November 2023 and biggest monthly drop since May 2022.

“The moment tariffs were first announced on January 20, a gap opened between home sales recorded this year and last,” said Shaun Cathcart, CREA’s Senior Economist, in CREA’s data release. “This trend continued to widen throughout February, leading to a significant, but hardly surprising, drop in monthly activity. This is already being reflected in renewed price softness, particularly in Ontario’s Greater Golden Horseshoe region.”

It’s clear that until true clarification is provided on tariffs – and their impact on the Canadian economy – home buyers aren’t keen to rush into the market if they don’t have it.

Also read:

• How US tariffs on Canada could impact you — and what you can do 
• Bank of Canada cuts target interest rate by 0.25% in January 2025 announcement
• Inflation and the Consumer Price Index in Canada
• Canada housing affordability and market trends