Canada Mortgage Rates 2026: 5-Year Fixed vs Bank of Canada Policy Rate
Bank of Canada · CAD · Pass-through 88% over 3 months
Transmission Chain
Average historical spread mortgage − policy rate: 1.75pp. Current spread: -0.70pp. Below the long-run average — competition or asset purchases are compressing the spread.
Historical Spread (5-Year Monthly)
Policy rate vs. typical fixed mortgage rate; the shaded area is the spread.
Implied 12-Month Forward Path
Where the typical fixed mortgage rate ends up if the futures-implied policy path holds and the historical spread reverts to its long-run mean.
How to read this page
The four tiles at the top show the live policy rate (set by Bank of Canada), the interbank rate (CORRA), and the typical fixed and variable mortgage rates available to a household in Canada. The gap between the policy rate and the mortgage rate is the spread — what the lender adds on top to cover funding, credit risk and profit.
The first chart shows that spread over the last five years. When the shaded area widens, banks are charging more on top of the policy rate, usually because the long bond market has moved or because banks are pricing in extra risk. When it narrows, competition or central bank bond-buying is squeezing margins. The second chart — the implied 12-month forward path — takes the current futures market's bet on where the policy rate is heading, applies the historical spread, and shows where your mortgage rate would land if both relationships hold. It is not a forecast: it is what current market pricing already implies.
Country-specific spread drivers
The mortgage-minus-policy spread observed for Canada (-0.70pp current vs 1.75pp historical mean) decomposes into four primary drivers. First, the funding curve: jurisdictions whose lenders fund predominantly via covered bonds (Germany, Denmark, France, Sweden) inherit the swap-plus-covered-spread basis, which moved from 5-15 bp pre-2022 to 25-50 bp during the ECB's APP/PEPP unwind. Lenders funded via deposit franchise (UK, Australia) anchor more to short-rate transmission and deposit beta. US lenders sell loans into agency MBS pools, so the spread is sensitive to the primary-secondary MBS basis and to Fed SOMA reinvestment policy.
Second, prepayment optionality and convexity: products without economic prepayment penalty (US 30Y, Danish callable bonds) trade at OAS rather than nominal spread; OAS widening during rate volatility regimes (VIX-Treasury MOVE comovement) bleeds straight into the borrower rate. Penalty-protected European products (German Festzins under §489 BGB, French indemnité de remboursement anticipé) carry minimal optionality premium. Third, lender duration mismatch: if the dominant local product is short-fixed (UK 2/5Y) the lender's asset-liability gap is small and the spread is stable; if long-fixed (US 30Y, German 10Y) lenders rely on swap and MBS markets to hedge duration, and spread widens when those hedge markets stress. Fourth, regulatory caps and capital treatment: France's taux d'usure, prudential LTV/DTI floors (Switzerland, Australia, Canada), and Basel III risk-weight differentiation across LTV buckets all alter the marginal cost of lending and feed back into quoted rates with lags of one to three quarters.
Forward Path (Monthly)
| Month | Implied Policy Rate | Projected 5-Year Fixed (Insured) | Spread |
|---|---|---|---|
| 2026-05 | 5.25% | 5.27% | +0.02pp |
| 2026-06 | 5.25% | 5.78% | +0.53pp |
| 2026-07 | 5.25% | 6.13% | +0.89pp |
| 2026-08 | 5.25% | 6.39% | +1.14pp |
| 2026-09 | 5.25% | 6.57% | +1.32pp |
| 2026-10 | 5.25% | 6.70% | +1.45pp |
| 2026-11 | 5.25% | 6.78% | +1.53pp |
| 2026-12 | 5.25% | 6.85% | +1.60pp |
| 2027-01 | 5.25% | 6.89% | +1.64pp |
| 2027-02 | 5.25% | 6.92% | +1.67pp |
| 2027-03 | 5.25% | 6.95% | +1.70pp |
| 2027-04 | 5.25% | 6.96% | +1.71pp |
How Bank of Canada policy reaches Canadian mortgage rates
The Bank of Canada sets the Target for the Overnight Rate (the policy rate). It anchors CORRA (Canadian Overnight Repo Rate Average), the post-CDOR risk-free benchmark, and the prime rate that banks publish (prime is conventionally policy + 2.20%).
Canadian mortgage transmission is moderately fast but distinctive in two ways:
- 5-year mandatory rollover: most Canadian mortgages are amortised over 25 years but the rate is fixed for only 5 years (the “term”). After 5 years borrowers must renegotiate or switch lenders. This creates a continuous flow of borrowers being repriced into current market rates.
- Insured vs. uninsured pricing: mortgages with less than 20% down payment must be insured by CMHC, Sagen, or Canada Guaranty. Insured loans are pooled into NHA MBS and price ~10-30 bp below uninsured loans.
Variable mortgages reprice with each Bank of Canada decision; 5-year fixed mortgages price off the 5-year Government of Canada bond yield plus a spread that reflects credit risk and lender competition.
Current rate snapshot
The snapshot table shows the typical 5-year fixed (insured), 5-year variable, CORRA, and the BoC overnight rate. As of May 2026 the 5-year fixed sits in the mid-4% range — well off the 2023-2024 peaks.
Historical spread vs. policy rate
The 5-year fixed vs. policy rate spread averaged ~1.75 pp pre-pandemic. Two notable episodes:
- 2020-2021: spread widened to ~3 pp as the BoC slashed the policy rate to 0.25% but the 5-year GoC bond stayed at ~1%.
- 2022-2023: spread compressed and even briefly inverted as the 5-year GoC sold off ahead of BoC hikes.
- 2024-2026: spread has normalised back to ~1.5-1.8 pp.
The variable mortgage spread is structurally narrower (~1.4 pp) because variables price directly off prime, which moves with the policy rate.
12-month forward path
The implied policy path uses 3-month CORRA futures at TMX (CRA product) — the deepest sterling-equivalent contract for Canadian short rates. The projected 5-year fixed mortgage applies the historical spread with an 88% pass-through and 3-month lag.
A practical caveat: the Canadian “stress test” requires borrowers to qualify at the contract rate + 2 percentage points or 5.25%, whichever is higher. If the implied path drops contract rates significantly, the stress test floor of 5.25% becomes the binding constraint for borrowing capacity rather than the actual rate offered.
Canada-specific mortgage product norms
- 5-year fixed: the most common product (~55% of new originations).
- 5-year variable (rate moves but payment fixed in many lenders): ~30% of new originations.
- 3-year fixed has gained share in 2024-2026 as borrowers position for expected cuts.
- High-ratio (insured) mortgages (<20% down) carry CMHC premium of 2.8-4.0% added to principal.
- Conventional (uninsured) mortgages (≥20% down): no insurance, but stricter underwriting.
- Posted vs. discounted rate: the Big Five banks publish a “posted” 5-year rate that is purely a benchmark for IRD penalties; almost no one pays it. The “discounted” or “special” rate is the actual market rate.
Sources & methodology
- 5-year fixed conventional rate: Statistics Canada Table 10-10-0145-01.
- 5-year fixed insured rate: CMHC Residential Mortgage Industry Report.
- BoC policy rate: Bank of Canada press releases.
- CORRA: Bank of Canada / CanDeal CORRA reference rate.
- Implied policy path: TMX 3-month CORRA Futures (CRA).
See the Bank of Canada page for BoC meeting probabilities.