Interest Rates Are Going Down By The End of 2025

17 minutes ago4 min read

At least that's what the six major banks in Canada believe.

In early 2022, I was sitting at my computer, with my jaw dropping to the floor.

"Scotiabank's Economist Derek Holt predicts the Bank of Canada's interest rate will increase to 3% from its low of 0.25%".

I was completely flabbergasted. In my mind, there wasn't anything crazier I could have heard someone predict. 3% from 0.25%? That's madness and will destroy the economy.

Looking back, I'm sort of glad he did it. He gave me a good laugh, and I couldn't help but build excitement to tell everyone about this prediction and explain why he was going to be so so wrong.

But he wasn't.

By July 12th, 2023, the Bank of Canada had raised its key interest rate to 5%. You could say my confidence got the best of me. Or perhaps I thought history couldn't repeat itself and that the Bank of Canada would never increase rates so much, so quickly.

In either case, I was wrong. Dead wrong.

Being wrong taught me something very important. I don't know everything. Neither do they. But maybe, just maybe, they know something I don't, or they see something from a perspective that I don't.

Just like that, the laughing stopped and I began to listen.

2025 Interest Rate Predictions

Everyone knows interest rates have been super volatile over the last few years. And 2025 is no different.

If you're reading this and wondering where rates will be by the end of 2025, you're not alone. I've been receiving this question from clients getting new mortgages and those who are up for renewal.

For that reason, I put together some data to give us a hint as to where rates are expected for the remainder of 2025.

What Are The Major Banks Predicting?

One word - decreases.

That's what ALL six of the major banks are predicting. I've collected the bank forecasts and put them in chart format below. Take a look and see my notes below.

Bank	2025 December Rate BoC Forecast	2025 December 5-Year Bond Yield Forecast
BMO	2.50%	N/A
CIBC	2.25%	3.05%
National Bank	2.25%	2.40%
RBC	2.25%	2.45%
Scotiabank	2.75%	3.00%
TD Bank	2.25%	2.75%
Current BoC & 5-Year Yield	3.00%	2.70%
Notes:	The Bank of Canada (Boc) rate is not the rate you receive on the market. This rate determines what the major banks use for their prime rate. You will receive a premium or discount from the prime rate.	The 5-year bond yield is not the interest rate you will receive from the bank. Banks add a 1.50-2.00% interest rate premium to the bond yield for the rate you receive.

What do you notice from this chart? ALL six major banks are predicting more Bank of Canada interest rate decreases. That's significant.

You might be wondering, why should I trust these banks?

Well, to start, maybe you shouldn't. After all, they're the ones making money off of those of us who have mortgages. But that aside, banks like to forecast rates—and be right.

Why do they like to be right?

The main reason is that economists can say, "I was right," which gives them the ability to offer trust and guidance when talking with clients, investors, and even internal managers such as CEOs and CFOs.

For example, if you walked into a bank branch today and the advisor told you rates were going down to 2% by the end of 2025, you'd probably laugh at them. But if they showed you that their chief economist predicted rates correctly the last five years, you'd start to listen.

And after all, once that credibility is proven, who are you going to bank with? Who do you trust?

You got it, whoever showed you that data.

In a sense, that's what this article is doing. You're reading this either knowing who I am and knowing I like to research financial data (for fun, haha), or it's your first time and you're determining if I know what I'm talking about.

If I can prove I know a thing or two about mortgages, you might click on another article and continue reading.

If not, you'll click to another site.

At the end of the day, we shouldn't put all of our trust in what the banks say, but we shouldn't ignore them either. None of them will be 100% right, but even if they're right most of the time, they can give us some good insight into things to come.

Where Do These Forecasts Leave Interest Rates?

The Bank of Canada's prime rate is currently at 3%, and the prime rate of the major banks is 5.20%.

If these rates are reduced even by the BMO projection to 2.50%, that's a 0.50% decrease. Not too bad. For reference, you can get a variable rate on the market around 4.50% as of March 2025.

Compare that with bond yields (which determine the fixed interest rates to a large extent), where the split is almost 50/50. About half of the banks predict the yields will increase, whereas half think the yields will decrease. Either way, I think it's safe to say fixed rates are at or near their bottom in the low 4.10% range.

If you're worried you're not getting the best rate or want to discuss where rates might be heading, feel free to email me at alex@triedandtruemortgages.ca. I’d be happy to chat about your options and plans. Sometimes, a fresh perspective helps.

TL;DR:

All six major Canadian banks predict Bank of Canada rate cuts to 2.25%-2.75% by December 2025.
Fixed rates may be near their low of 4.10%, while variable rates could drop to around 4.50%.
These forecasts suggest that a variable rate might be the right option for you if you're comfortable with it. Otherwise, you can't go wrong with a fixed rate at the moment.