With another interest rate cut on Wednesday, borrowers may soon be able to get mortgages with rates in the 3-per-cent range.DARRYL DYCK/The Canadian Press
Mortgages rates below 4 per cent are set to become mainstream as interest rates drop, breaking a psychological barrier for many prospective homebuyers and motivating them to leap into the market.
With the Bank of Canada cutting its benchmark interest rate Wednesday to 2.5 per cent from 2.75 per cent, lenders are expected to offer mortgages that could soon be in the 3-per-cent range instead of hovering around 4 per cent.
Although the rate drop would make home loans only slightly cheaper, mortgage rates that start with a three are seen as a psychological turning point for would-be buyers.
“Today’s decision will mean pretty much everyone is getting 3-point-something,” said Shaun Cathcart, senior economist with the Canadian Real Estate Association. “We’re finally back into a range that a lot of people consider normal.”
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From the 2009 global recession until the start of the pandemic in 2020, the average interest rate on the popular five-year mortgage was in the 3-per-cent range, which Mr. Cathcart said is more typical of the last decade as opposed to the rates above 4 per cent seen in recent years.
Getting back to what buyers consider “normal” will likely motivate them to enter the real estate market.
That would give more fuel to a recent market upswing where sales have been on the rise over the past five months. August purchases hit their highest volume for the same month since 2021 when the country’s real estate market was booming, according to recent CREA data.
“Having a three handle on mortgage rates is an important psychological hurdle for buyers,” said Penelope Graham, a mortgage expert with rate comparison website Ratehub.ca
Other mortgage experts agreed. “If rates come down, people will come back into the market,” said Shaunese Lawrence, a mortgage agent with Clover Mortgage who has been brokering mortgages in the Toronto region for more than a decade.
Ms. Lawrence said she has lost count of the number of people who are saying: “I just want to get something.”
Since late 2022, the real estate market has been mostly in a slump. Home sales dropped as borrowing costs rose, properties lost value and individual investors disappeared from the new construction market because real estate investments are no longer profitable.
Even when the Bank of Canada started cutting its benchmark rate in June, 2024, and made seven consecutive cuts through March, 2025, many buyers remained reluctant to make a purchase. Buyers considered mortgage rates still relatively high, especially compared with the sub-2-per-cent rates that were prevalent in the early days of the pandemic.
Then as buyers started to venture into the market early this year, fears of a recession abounded owing to the start of the U.S. trade war.
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On Wednesday, the central bank said it cut rates in part because the economy has been weakening with the rise in unemployment. In its interest-rate announcement, the central bank pointed to the recent uptick in the housing market as a sign of economic resilience.
Ahead of the central bank announcement on Wednesday, the average interest rate was 4.1 per cent for a five-year variable-rate product and 3.97 per cent for a five-year fixed-rate mortgage, according to data from MortgageLogic.news.
The big Canadian banks – which dominate nearly 60 per cent of the mortgage market – were advertising mortgage rates above 4 per cent, according to their websites.
“A mortgage rate starting with a three is helpful,” said Clinton Wilkins, principal broker with Centum Home Lenders Ltd., who has been brokering mortgages in Nova Scotia for more than 20 years.
“Once those rates are widely available, it will add some demand in the market,” he said.