How Inflation Impacts Canadian Mortgages in 2025

By Troy Tyrell | WBN News Vancouver | July 02, 2025
📢 Subscription to WBN and being a Contributor is FREE.
👉 Click here to begin reading or writing with us!

VANCOUVER, BC – For Canadian homeowners, 2025 is shaping up to be a year of both relief and reckoning. Inflation has finally returned to near the Bank of Canada’s 2% target, but its lingering effects are still rippling through the mortgage market.

With interest rates coming down, many hoped for breathing room. But the reality? Over 2 million Canadians are renewing their mortgages this year—and for most, that means facing significantly higher monthly payments.

💸 Inflation Drops, but Mortgage Pressure Rises

Following rapid rate hikes during the 2022–2023 inflation spike, the Bank of Canada has since reduced its policy interest rate to 2.75% as of June 2025. Analysts forecast at least one more rate cut before the end of the year.

That’s good news for new borrowers—especially those opting for variable-rate mortgages. But for those renewing fixed-rate terms locked in during the pandemic’s ultra-low-rate era, it’s still a tough pill to swallow.

“Even with rate cuts, people coming off 1.5% or 2% fixed rates are now looking at 4% or more,” says economic analyst Keira D’Souza of RealRate Insight. “That’s a significant jump in monthly payments—especially in high-cost areas like Vancouver and Toronto.”

📈 Renewal Shock Hits Millions

According to the Canada Mortgage and Housing Corporation (CMHC), more than 45% of Canadian mortgages are up for renewal by the end of 2026. In Q1 2025 alone, mortgage refinancing activity jumped 57.7% compared to last year.

While stress tests built into original loans anticipated these higher rates, household budgets are still taking a hit.

“We stress-tested at 5.25%, so technically we can afford this,” says Vancouver homeowner Julia M. “But daycare, groceries, and gas are all still expensive. It’s tight.”

🏦 Variable vs Fixed: A Risky Trade-Off

With rates easing, variable-rate mortgages have become more attractive again, especially since they quickly reflect policy rate changes. About 41% of new mortgages in early 2025 were either variable or short-term fixed.

Meanwhile, 5-year fixed rates briefly dipped below 4% earlier this year but have edged back up, influenced by global bond markets.

Mortgage broker Tim Chow explains:

“The gap between variable and fixed is narrower, so some clients are staying short-term fixed, 1 to 3 years, and hoping rates fall further.”

🔍 Inflation’s Hidden Grip on Mortgages

Mortgage interest costs remain a key inflation driver. Even as headline inflation dips, mortgage interest makes up around 0.5 percentage points of Canada’s consumer price index. It’s a feedback loop: high rates slow inflation, but also inflate measured inflation due to increased borrowing costs.

The Bank of Canada has acknowledged this quirk but remains committed to normalizing rates at a sustainable pace.

🔧 Advice for Homeowners in 2025

Whether you’re renewing, buying, or just watching the market, experts offer three key tips:

1. Renew Strategically: Shop around. Lenders are offering competitive rates for qualified borrowers.
2. Stay Flexible: Consider short-term fixed or variable rates if you believe inflation and rates will fall further.
3. Plan Ahead: Budget for slightly higher payments, and trim non-essential debt where possible.

⚠️ The Bottom Line

Inflation may be cooling, but its fingerprints are still all over Canada’s mortgage market. For millions of homeowners, 2025 is about recalibrating: reassessing finances, adjusting expectations, and facing the new norm.

If you’re about to renew, don’t panic, but don’t go in blind either. Review your budget, talk to your lender, and keep an eye on inflation’s next move.

By Troy Tyrell, Founder of Tsquared Personal Training
WBN Contributor | Community Builder | Mountain Biker | Advocate for Local Business & Fitness
📍 Google Business Profile – Tsquared Personal Training,
🔗 Connect on LinkedIn
📘 Follow on Facebook

TAGS: #Canadian Mortgages #Mortgage Renewal 2025 #Inflation Canada #BoC Rate Cuts #Vancouver Housing #Mortgage Stress #Interest Rates Canada #Troy Tyrell #WRN News Vancouver