Introduction:Canadian mortgage rates have surged in recent years, but they’re now facing downward pressure as economic risks mount. With the prospect of new U.S. tariffs on Canadian goods looming, many wonder if rates could plunge back to the rock-bottom levels seen during the 2008–2010 Great Recession and the 2020 COVID crisis. Below, we analyze this likelihood by comparing historical rate lows to today’s levels, examining the Bank of Canada’s policy stance, assessing the tariff-driven economic impact, reviewing expert forecasts, and mapping out possible scenarios for significant rate drops.
Historical Comparison: 2008–2010 & COVID Lows vs. Current Rates
During the 2008–2010 financial crisis, interest rates in Canada hit unprecedented lows. The Bank of Canada slashed its overnight rate to just 0.25% in 2009 – effectively the lower bound – to fight the recession (Recession of 2008–09 in Canada | The Canadian Encyclopedia). Canadian mortgage rates followed suit. The average variable mortgage rate plunged to about 1.95% in 2009, down from roughly 4.45% in 2008 (Mortgage Rate History - Super Brokers). Five-year fixed mortgage rates also fell, dropping from over 7% before the crisis to the mid-5% range by 2009–2010 (Mortgage Rate History - Super Brokers). These were, at the time, historic lows for mortgages.
Fast forward to the COVID-19 pandemic, and rates fell even further. In 2020, the Bank of Canada again cut its policy rate to 0.25%, and mortgage rates hit record lows, with some 5-year fixed loans available near 1.5–2% (Mortgage Rate History in Canada - NerdWallet). Those ultra-low rates helped fuel a housing boom and were unprecedented in modern Canadian history.
Today, however, rates have rebounded. After aggressive hikes to combat post-pandemic inflation, the Bank of Canada’s overnight rate sits around 3.0% (as of early 2025) (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). Five-year fixed mortgage rates are now in the mid-4% to 5% range, and variable rates (tied to prime) are roughly in the high-4% range – the highest borrowing costs in over a decade (Mortgage Rate History in Canada - NerdWallet). In short, current rates are far above the crisis-era lows of 2008–2010 or 2020. The key question is whether a tariff-induced economic downturn could drive rates back down near those historic troughs.
Bank of Canada’s Monetary Policy and Rate Cut Outlook
The Bank of Canada (BoC) has recently shifted from raising rates to easing mode as inflation has moderated. After peaking at a 5.0% policy rate in 2023 (Monetary policy, interest rates and the Canadian dollar - Bank of Canada), the BoC has begun cutting rates – reaching 3.00% by January 2025 (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada) – and ended its quantitative tightening program (Bank of Canada reduces policy rate by 25 basis points to 3%, announces end of quantitative tightening - Bank of Canada). Markets and economists widely anticipate further gradual cuts. In fact, the BoC’s own surveys show forecasters expecting the policy rate to fall to roughly 2.5% by the end of 2025 under a normal scenario (Monetary policy, interest rates and the Canadian dollar - Bank of Canada). Private bank forecasts echo this: for example, RBC and other major banks see the overnight rate drifting down into the low-2% range by late 2025 (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). This baseline assumes no major shocks – a steady decline in rates, but not a free-fall to zero.
Importantly, the BoC’s neutral interest rate (the rate consistent with stable inflation and full employment) is estimated around 2.25–3.25% (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). With the current policy rate at 3%, Canada is just at the upper end of neutral. This gives the Bank room to cut rates without venturing into extraordinary stimulus territory – a point BoC officials have noted in the context of potential shocks (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). In other words, if growth deteriorates, the Bank can slash rates further and fairly quickly. Bank of Canada leaders have also flagged the threat of U.S. tariffs as a major uncertainty. In its January 2025 report, the BoC projected that “in the absence of new tariffs, growth is forecast to strengthen, and inflation remains close to 2%. But the threat of new tariffs is causing major uncertainty.” (Bank of Canada reduces policy rate by 25 basis points to 3%, announces end of quantitative tightening - Bank of Canada) This suggests that if those tariffs do hit, the Bank is prepared to adjust policy accordingly – likely by cutting rates faster or further to cushion the economy. BoC Governor Tiff Macklem has signaled a balanced approach: “We will need to carefully assess the downward pressure on inflation from the weakness of the economy, and weigh that against the upward pressure on inflation from higher input prices and supply chain disruptions” (How Trump's Tariffs Could Impact Mortgage Rates in 2025). In plain terms, the Bank would be focused on supporting growth if the economy weakens, even if tariffs cause a temporary inflation spike.
Tariffs’ Economic Impact: Inflation, Employment & Growth Risks
(BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada) Upcoming U.S. tariffs threaten to hit Canada’s economy like a one-two punch – raising import costs (fueling inflation) while hurting exports and growth.
The upcoming U.S. tariffs on Canadian exports represent a significant downside risk to Canada’s economy. The scenario being discussed involves steep duties (reports mention figures like 20–25% tariffs on Canadian goods, including oil and gas (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada)). Such trade barriers would raise the cost of imports and exported goods, likely creating a burst of “cost-push” inflation – higher prices stemming from supply chain costs, not booming demand. At the same time, tariffs would crimp demand for Canadian products, drag down exports, and dent business confidence. Economists warn this kind of trade shock could act like a “jackhammer” on the economy, simultaneously slowing growth and elevating inflation (How Trump's Tariffs Could Impact Mortgage Rates in 2025).
Several projections paint a stark picture. For instance, Oxford Economics analysts estimate that broad U.S. tariffs could cut Canadian GDP by about 2.5%, push unemployment up toward 8%, and temporarily spike inflation to ~7% (How Trump's Tariffs Could Impact Mortgage Rates in 2025). Even more targeted tariffs (on select sectors like steel) could be enough to tip Canada into recession (How Trump's Tariffs Could Impact Mortgage Rates in 2025). In essence, a full-blown tariff war would create a stagflationary scenario – weaker economic output alongside higher prices. We saw a mini-version of this in 2018–2019’s trade tensions, but the proposed 2025 tariffs are larger in scope.
How would the Bank of Canada react to such a dilemma? Likely by prioritizing the growth and employment side of its mandate. A surge in prices due to tariffs is not “normal” inflation driven by excess demand – it’s a one-time tax on imports that can choke the economy. Historically, central banks have been cautious about raising rates in response to supply-driven inflation spikes, because doing so can deepen the downturn (How Trump's Tariffs Could Impact Mortgage Rates in 2025). Governor Macklem’s comments above reinforce that the BoC would weigh the weak economy vs. high import prices carefully (How Trump's Tariffs Could Impact Mortgage Rates in 2025). Most analysts expect the Bank would cut rates to support the economy if tariffs hit, despite the inflation uptick. Indeed, the “bigger problem” is likely to be job losses and a contraction, so the tariff-driven inflation may be largely “overlooked” by policymakers (How Trump's Tariffs Could Impact Mortgage Rates in 2025). The Bank would shift from fighting inflation (which was its focus in 2022–2023) to fighting a potential recession, assuming inflation expectations remain anchored.
That said, tariff-related inflation could limit how fast or how far the BoC eases. Policymakers wouldn’t want to completely ignore a 7% inflation rate if it proved persistent. Some experts caution that ongoing cost pressures and trade volatility “may still limit the BoC's ability to cut rates as quickly as the economy requires.” (How Trump's Tariffs Could Impact Mortgage Rates in 2025) In practical terms, the Bank might cut rates, but perhaps a bit more gradually if inflation is running hot – at least until it’s clear that the economic slowdown is taming underlying inflation. This balancing act will be crucial in determining how low rates can go. If the downturn is severe enough, the BoC can and likely will tolerate a temporary inflation overshoot in order to shore up growth.
Expert Forecasts: Interest Rates and Mortgage Trends
Market experts and forecasters are already adjusting their outlook in light of the tariff threat. Virtually all major bank economists anticipate more BoC rate cuts in 2025 – the debate is over how many and how quickly. Here’s what some experts are saying:
BMO Capital Markets: BMO warns that if the U.S. tariffs are enacted, the Bank of Canada “may be forced to cut its policy rate to 1.50% by year-end” (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). This would be a full percentage point lower than BMO’s no-tariff baseline forecast (which was 2.50%). In other words, BMO sees the overnight rate dropping into the 1%–2% range in a tariff scenario, compared to mid-2% otherwise. Such an outcome would be the lowest policy rate since 2020’s emergency cuts. BMO economist Michael Gregory noted this would require a much more aggressive rate-cutting cycle than previously expected (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). It’s a significant forecast: 1.50% overnight rate implies prime lending rates around ~3.7% and variable mortgage rates possibly in the low-3% range – a dramatic decline from today.
National Bank of Canada: National Bank’s economists have gone so far as to call for emergency rate action if tariffs appear likely. Believing tariff implementation was imminent, they argued there was a “strong argument for an inter-meeting cut” of at least 50 basis points (0.50%) (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada) (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). They point out that at a 3% overnight rate currently, the BoC still has room to slash rates quickly and should use it to “buttress financial conditions” before the full tariff impact hits (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). In National’s view, the shock to confidence from a trade war could warrant swift action rather than waiting for scheduled meetings. Beyond an initial big cut, they projected the BoC would follow up with its regular easing path – for example, 25 bps cuts in March and April – bringing the rate down to around 2.0% by the spring of 2025 (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). That implies mortgage rates could fall accordingly (with variable rates dropping further and fixed rates following bond yields down). National Bank essentially envisions BoC front-loading cuts to get ahead of a potential recession.
TD Economics: Analysts at TD also see significant easing on the table. In a study of even a smaller tariff shock (a hypothetical 10% tariff on all Canadian imports), TD concluded the BoC could be “forced into additional interest rate easing to the tune of 50–75 basis points” beyond the usual path (How Trump's Tariffs Could Impact Mortgage Rates in 2025). In other words, a moderate trade shock might add half to three-quarters of a percent in extra rate cuts. If a full 25% tariff package hit, the cuts might be larger. TD’s scenario underscores that even the threat of tariffs has shifted market expectations toward more cuts (How Trump's Tariffs Could Impact Mortgage Rates in 2025). Already, bond yields and swap markets in late 2024 were pricing in a faster decline in Canadian rates, reflecting nervousness about growth (How Trump's Tariffs Could Impact Mortgage Rates in 2025). All this bodes for lower mortgage rates in 2025 than previously forecast, especially for floating rates.
RBC and Other Banks: The Royal Bank’s base-case outlook (assuming no trade war) is for gradual rate cuts into mid-2025, likely bringing the overnight rate down to the low-2% range (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). RBC’s Chief Risk Officer noted in early 2025 that they expect the BoC to continue “gradually cutting rates into the middle of the year,” which will bring additional relief to variable-rate mortgage borrowers (RBC says it's ready for competitive spring mortgage market and upcoming renewal wave - Mortgage Rates & Mortgage Broker News in Canada). In practice, even a baseline 2.0% policy rate would mean a substantial drop in mortgage costs from 2024 highs. Mortgage industry observers also highlight a looming wave of mortgage renewals in 2025, where many borrowers coming off sub-3% pandemic rates will face much higher renewals (RBC says it's ready for competitive spring mortgage market and upcoming renewal wave - Mortgage Rates & Mortgage Broker News in Canada). Banks like RBC are bracing for this “payment shock” for consumers, but any BoC rate relief will soften the blow. If tariffs cause a deeper cut in rates, it could help mitigate the renewal shock somewhat, easing pressure on households.
Mortgage Market Trend Experts: Within the mortgage industry, there’s a view that a tariff-driven downturn would favor variable-rate mortgages due to falling rates. Dan Eisner, CEO of True North Mortgage, suggests that if “2025 turns into the year of tariffs, a variable rate might go even lower than predicted,” potentially offering savvy borrowers a chance to save by riding rates downward (How Trump's Tariffs Could Impact Mortgage Rates in 2025). This implies that some expect BoC to overshoot to the downside on rates in a worst-case scenario. Fixed rates, which are tied to bond market expectations, have also started to ease on anticipation of BoC cuts. The consensus of most forecasters is that Canadian mortgage rates in 2025 will trend down, not up – the only question is by how much.
Bottom line from experts: Absent tariffs, most forecasts see the overnight rate bottoming out around 2.0%–2.5%, which is well above the ~0.25% floor of 2009 and 2020. But with major tariffs, analysts like BMO and TD are penciling in substantially deeper cuts (potentially into the 1% range for overnight rates). That would be a return to exceptionally low interest territory, though perhaps not all the way to the absolute record lows unless the situation gets extremely dire. No major bank is yet predicting a definite reversion to near-zero rates – that’s viewed as an emergency outcome if the economy really tanks.
Scenarios: What Would It Take for Rates to Drop Significantly?
Given the above factors, we can sketch a few scenarios for Canadian rates in response to the tariffs:
1. Moderate Impact (Tariffs Averted or Short-Lived): In the best case, upcoming tariffs are delayed, scaled back, or quickly resolved. The Canadian economy would avoid a severe hit, and the BoC would likely continue with only modest, gradual rate cuts. Mortgage rates would edge down through 2025, but probably not crash back to 2008–2010 levels. For instance, the overnight rate might settle around 2.25%, and five-year fixed mortgages maybe dip into the low-4% range. That’s a relief from current levels but nowhere near the ~0.5% overnight and ~3% mortgage rates of the post-2008 period.
2. Full Tariff Implementation (Mild Recession): If the U.S. imposes the tariffs as threatened (e.g. 20–25% across many goods) and Canada retaliates, we could see a technical recession in Canada. Growth might turn negative for a couple quarters and unemployment would rise notably (How Trump's Tariffs Could Impact Mortgage Rates in 2025). In this scenario, the BoC would respond assertively. We’d expect larger rate cuts totaling perhaps 1.5–2 percentage points over 2025 (consistent with BMO’s call for a 1.50% policy rate) (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada). That could bring the overnight rate down near ~1%, give or take. Mortgage rates could drop into the 3%–4% range for many borrowers. This would approach the low levels of the early 2010s. For context, during the 2009 recession, five-year fixed rates fell to ~4–5% (Mortgage Rate History - Super Brokers) and variable rates around 2%. Under a mild recession scenario, we might revisit those kind of levels. It’s a significant drop from today, though perhaps still a tad higher than the absolute trough of the pandemic (when some fixed rates hit ~1.8%).
3. Severe Downturn (Deep Recession or Global Spillover): There’s always a chance that tariffs could be a catalyst for a broader global downturn – for example, if a trade war severely undermines business confidence, financial conditions tighten, and other countries’ economies also contract. In a severe recession, all bets are off. The Bank of Canada would likely revive crisis-era tools: cutting rates back near the zero lower bound (0.25% or even a technical zero) and possibly restarting large-scale asset purchases (quantitative easing) to stimulate the economy (Bank of Canada reduces policy rate by 25 basis points to 3%, announces end of quantitative tightening - Bank of Canada). This is the scenario where mortgage rates could truly return to 2008–2010 lows, or even the record lows of 2020. We could imagine five-year fixed rates under 3% again and variable rates in the 1%–2% range – essentially a return to emergency monetary policy. However, this outcome would likely require more than just tariffs; it’d be tariffs plus something like a major financial crisis or a U.S. recession that spills into Canada. It’s a tail-risk scenario rather than the base case.
Most experts consider the full return to crisis-level interest rates to be a low-probability scenario unless the economic damage is truly severe. The 2008–2009 and 2020 rate floors were responses to once-in-a-generation crises (a global financial meltdown and a pandemic). A trade war, while very harmful, might not reach that same level of severity on its own. Thus, the likelihood of Canadian mortgage rates returning all the way to 2008–2010 lows is relatively small – it’s not impossible, but would likely require tariffs to trigger a deep recession or combine with other shocks. More likely, we’d see rates fall significantly but not all the way to the rock bottom. For example, a drop into the 1–2% policy rate range (and 3%–4% mortgages) is plausible under a tariff recession, matching the multi-decade lows apart from the extreme 2020 episode.
Conclusion
In summary, Canadian mortgage rates are poised to decline from their recent peaks as the Bank of Canada shifts to easing mode. The question is how far they will drop. In the absence of a major shock, they’ll probably settle moderately above the historic lows of 2009 and 2020. However, an escalation of U.S. tariffs could materially darken Canada’s economic outlook – undermining growth and employment – which in turn would prompt the BoC to cut rates more aggressively. Analysts and central bankers indicate that under a serious tariff scenario, interest rates could indeed fall much closer to crisis-era levels than previously expected (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada) (How Trump's Tariffs Could Impact Mortgage Rates in 2025). We could see overnight rates in the low 1% range and mortgage rates at least back to the low-single digits, if not lower.
That said, revisiting the absolute lows of 2008–2010 (near 0% rates) would likely require a worst-case outcome. Most forecasts stop short of predicting a return to zero, barring a deep recession. The BoC will try to manage a balance – providing enough stimulus to counteract the tariff “punch” to the economy (How Trump's Tariffs Could Impact Mortgage Rates in 2025), but being mindful of not re-igniting inflation. Homeowners and buyers should thus expect lower mortgage rates ahead – offering some relief – but should temper expectations about a return to the ultra-easy money of the post-2008 era. It’s not impossible, but it would take a confluence of negative factors for Canada to truly relive those record-low rate days. In essence, rates could “drop significantly” under the tariff scenario, but whether they fully reach 2008–2010 levels will depend on how harsh an economic storm the tariffs unleash and how the Bank of Canada navigates the trade-off between inflation and growth.
Sources: Historical mortgage rate data (Mortgage Rate History - Super Brokers) (Mortgage Rate History in Canada - NerdWallet); Bank of Canada statements and forecasts (Monetary policy, interest rates and the Canadian dollar - Bank of Canada) (Bank of Canada reduces policy rate by 25 basis points to 3%, announces end of quantitative tightening - Bank of Canada); Expert commentary from BMO, National Bank, TD, etc. (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada) (BMO forecasts 1.50% BoC rate by year-end if U.S. imposes tariffs on Canada - Mortgage Rates & Mortgage Broker News in Canada) (How Trump's Tariffs Could Impact Mortgage Rates in 2025); Economic impact estimates (How Trump's Tariffs Could Impact Mortgage Rates in 2025); True North Mortgage analysis (How Trump's Tariffs Could Impact Mortgage Rates in 2025) (How Trump's Tariffs Could Impact Mortgage Rates in 2025).
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