BoC Pauses Rate Cuts: Prime Rate Steady at 4.95% in April 2025
- Neil Joseph
- Apr 16
- 7 min read
Welcome to the third edition of our Mortgage Newsletter for 2025!
After seven straight cuts, the Bank of Canada hit the brakes this morning—holding its policy rate at 2.75%, and keeping the Prime Rate steady at 4.95%. While that might disappoint some borrowers hoping for another drop, we’ve still come a long way down from last year’s peak of 7.20%.
If you’ve got a variable-rate mortgage or debt tied to Prime, this pause doesn’t change your payment—but you’re still sitting on significant savings:💰 Since June 2024, monthly interest costs have dropped by $187.50 per $100K borrowed. That’s nearly $1,000/month in relief on a $500,000 mortgage.
This pause likely signals that the Bank wants to see more evidence of a weakening economy before cutting further (and deeper?). So, what's behind today's decision?
🏦 What's keeping the Prime Rate steady?
Here’s what’s been happening in the broader economic picture:
🇺🇸 Canada dodged the latest U.S. tariffs, earning a 90-day reprieve. Still, our Auto, Steel, and Aluminum sectors are feeling the heat.
📉 Markets dipped into near-bear territory before bouncing back last week.
💵 Bond markets reversed sharply after a significant dip—volatility remains high.
🇺🇸 U.S. confidence is slipping—consumer sentiment and business investment are weakening, with higher recession risks on the horizon.
🗳️ Canada’s federal election is coming April 28, injecting some political uncertainty into the mix.
⛽ Carbon tax was reduced to 0% as of April 1 (not cancelled!), easing fuel costs for now—but that could change post-election. What a betrayal that could be...
🏡 Mortgage rates continue to trend down, easing inflationary pressure across the board.
💼 In Canada:
Year on Year Inflation/CPI growth came in at 2.6% in February; March still lower at 2.3%, even before we factor in the lower gas prices in April.
GDP growth in January hit 0.4% (above estimates, likely due to pulled-forward demand). But no growth is expected for February.
Unemployment jumped to 6.7% in March after 33,000 jobs were lost.
🇺🇸 Meanwhile, in the U.S.:
Unemployment is rising (4.1% in Feb → 4.2% in March).
Inflation is easing (CPI: 2.8% in Feb → 2.4% in March).
GDP growth has softened to 2.4% in Q4 2024, with Q1 2025 now projected to contract by 2.8%.
So, what does all this mean for your mortgage and financial game plan? That’s what we’ll unpack below—along with smart next steps you can take.
Mortgage Market Insights: What's Changing?
📉 Bond Yields & Fixed Rates
Bond yields have been anything but stable lately.
The 5-year Canadian bond yield jumped from 2.688% (March 12) to 2.897% late last week, a sharp rise of over 50 basis points from the recent low of 2.386% on April 3.
In response, many lenders nudged fixed mortgage rates up by 0.10% to 0.20%—after having just dropped them when yields were sliding.
👉 The big question: Will Canadian bond yields keep shadowing U.S. trends—even as our economy shows more signs of weakening? Let’s hope lenders don’t start padding their margins "just in case" over the coming months.
⚔️ Fixed vs. Variable: The Rate Rivalry Continues
Fixed rates have been the cheaper option for over two years—but the gap is narrowing fast.
They’re still leading the way down, but if rate cuts continue, variable rates could reclaim their spot as the lower-cost choice.
That said, lenders have been reducing variable-rate discounts since October 2024—so new borrowers might not see the full benefit of falling rates.
📌 Bottom line: Just because the BoC is cutting rates, don’t assume a variable mortgage will always be the better deal—especially if you're getting in now.
What Should You Do?
It depends on your risk tolerance and time horizon:
✅ Need stability?A short-term fixed rate could be your best friend—offering peace of mind while rates are still historically reasonable.
✅ Okay with some risk?A variable rate could pay off—if lenders continue passing on rate cuts fully.
✅ Can’t decide?Go hybrid. Split your mortgage into part fixed, part variable. It’s like having a seatbelt and a sunroof—you get some protection and some potential upside.
2025 Rate Outlook:
Most major bank economists and bond traders see the Prime Rate dropping by another 0.25% to 0.75% by year-end.
But... forecasts are just that. And we’ve seen how quickly things can change.
Here are the wildcards that could reshape the rate path:
1️⃣ U.S. recession or deepening trade issues → More aggressive rate cuts in Canada.
2️⃣ Surge in Inflation → Cuts could pause—or worse, reverse.
3️⃣ Global risks → Trade wars, geopolitical tensions, election results, policy shifts—take your pick. Risk premiums will increase.
4️⃣ U.S. dollar instability → If confidence in the U.S. economy wanes and Dollar sell-off ramps up, US bond yields could keep rising and Canadian bonds could be held hostage.
🚨 Bottom line: Stay flexible, stay informed, and revisit your mortgage strategy as conditions evolve, or go Fixed and sleep peacefully!
📩 Need a game plan? Let’s connect and craft a mortgage strategy that fits your goals.
Schedule meeting per your convenience here.
Current Market Snapshot: 5-Year Bond Yields
As of today, the 5-year bond yield sits at 2.766%, a modest increase from 2.632% in our March newsletter.
In the bigger picture, yields have fallen 169.5 basis points from their peak of 4.461% (Oct 2, 2023), hitting a fresh low of 2.386% on April 3. However, a potentially concerning development: we’ve now breached the recent high of 2.727% from March 26, 2025.
📉 Unless the broader downtrend resumes, it’s possible we’ve already seen the near-term bottom in bond yields. This could signal a stabilization phase—and may even set a new floor for fixed-rate mortgages going forward.
If you’re the type who likes to geek out on the numbers, we’ve got you covered—scroll down for detailed charts that reveal what the markets are really up to. No crystal ball needed—just solid data. 📉🔍📈
For those unfamiliar with terms like Insured, Insurable, Uninsured, or Rental, a concise explanation is provided in note# 1 below.
Note: The rates indicated below are the most commonly available rates for Prime borrowers. Many Qualified borrowers secure a lower interest rate than depicted below due to superior credentials. Interest rates with B-lenders and Private mortgages are at a premium to these levels.
The charts above show the trend in interest rate (2) for Fixed Rate Mortgage types for the last 42 months. The rates have fallen by about 1.85% to 2.20% from their peak in October 2023. For the shorter term (1-3 year) Fixed rate mortgages, the premium over corresponding 5-year rates have continued to reduce (eliminated in the case of 3-year term). Fixed rates have dropped by 0.10% to 0.35% since our last update.
Above chart shows the spread between the 5-year Canada Bond yield and 5-year Mortgage (Fixed rate). This spread has reduced from the levels we saw in 2022-23. They are also sharply down from March 2025 and currently in the 1% to 1.35% range. This may increase if lenders anticipate a higher risk in lending their funds (more so on the uninsured side).
The charts above show the trend in interest rate (2) for Variable Rate mortgage types for the last 42 months. Do note the Variable Rate Pricing will adjust later today or tomorrow to reflect the change in Prime Rate. The speed of adjustment in Variable Rate is much slower than the Fixed Rates given the dependency with Bank of Canada’s decision schedule. The rates are generally reducing at the same pace as the reduction in Prime Rate.
A higher discount on the chart generally signifies a heightened demand for Variable Rate mortgages and low risk premium. It reflects the dynamic interplay between borrower preferences and the response of lenders to this demand. Conversely, a lower discount may indicate a market shift towards Fixed Rate products.
We're likely entering a phase where more borrowers may choose Variable Rate mortgages due to the potential for a Prime Rate reduction but the risk premium is also increasing given tariff and economic headwinds. As a result, the discount to Prime Rate is fluctuating month to month. We may not see a proportionate decline in new Variable Rate mortgages issued by lenders given the reducing discount (though steady for the last month).
Generally, Fixed rate mortgage rates are higher than their corresponding Variable Rate mortgages at the time of securing one but this relationship has been inverted for the last 29 months or so. However, given the steady drop in Prime Rate this gap has been reducing steadily. Variable rate mortgages are still at a slight premium to Fixed Rate (about 0.15% across various types of mortgages ).and
1. Explanation of key terms
Insured – These mortgages are backed by a mortgage insurer like CMHC and borrower needs to pay an insurance premium. All properties purchased with less than 20% downpayment fall under this category and come with an amortization of 25 years (30 years for First Time Home Buyers / New Construction homes) or lower and purchase price cannot be higher than $1M ($1.5M for First Time Home Buyers).
Insurable – These mortgages require the borrower to have a downpayment of 20% or higher, amortization is restricted to 25 years or lower and purchase price cannot be higher than $1M.
Uninsured – These mortgages require the borrower to have a downpayment of 20% of higher but amortization can be 30 year or lower and purchase price can be higher than $1M.
Rental – These mortgages are specifically for Rental or Investment properties and need to have a downpayment of 20% or higher but come with amortization of 30 years (with most lenders) and purchase price can be higher than $1M.
2. Interest Rates depicted are those which are commonly accessible by most well-qualified borrowers with excellent credit and debt service ratios. Some borrowers might be able to secure an interest rate which is lower than these levels on account of superior qualification. Interest rates with B-lenders and Private mortgages are much higher than these levels.
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