The Bank of Canada Holds at 2.25%: Why Relief Is Pausing, Not Reversing for Mortgage Borrowers
Image courtesy of Money.ca
The Bank of Canada kept its policy rate at 2.25% on January 28, 2026, marking a third straight pause after a series of cuts through 2024–2025.
That decision tells us two important things: inflation is easing, and the Bank believes rates are now low enough to support growth without needing to fall much further. For homeowners and buyers, this means borrowing costs are likely to stay stable but elevated rather than dropping back toward the ultra-cheap money era.
What the Hold at 2.25% Really Signals
Economists expected a hold, given lingering uncertainty around U.S. tariffs, trade policy, and their impact on Canada’s economy. Core inflation measures (CPI-median and CPI-trim) are drifting closer to the 2% target, and the labour market, while softer, remains resilient with a higher unemployment rate driven more by people re-entering the job market than by mass job losses.
In plain language:
The inflation crisis is cooling, but not “fixed.”
The Bank sees enough progress to stop cutting, but not enough strength to start hiking.
The most likely scenario for 2026 is no hikes, no big cuts—just a rate plateau.
For mortgage holders, that means:
Don’t expect big extra breaks on your rate.
But also don’t fear sharp, immediate increases this year.
What This Means for Mortgages and Renewals
Roughly one-third of all Canadian mortgages—more than 1.2 million—will renew in 2025–2026, many of them taken out at pandemic-era rates between 1–2%. Those borrowers are still facing a payment shock, just a slightly less painful one after the 2025 cuts.
Example:
Original mortgage: $500,000 at 2% (5-year fixed).
Renewal today: closer to 5.0–5.25% instead of 2%.
That’s still $800+ more per month versus the original payment, even after cuts shaved about $70–$100 off what the payment might have been at 5.25%.
The January pause means there’s no new relief coming right now for those about to sign renewal papers. The rate-cut cycle is on hold; the payment increase is still real.
How This Could Affect You: A Practical Example
Imagine you’re renewing in late 2026 with a $450,000 balance:
Old rate (2021): 1.9%
New renewal rate (2026): ~4.8–5.0%
Monthly payment jump: several hundred dollars, depending on amortization.
If you assume “rates will keep falling” and don’t plan ahead, that increase can crush your monthly budget. If instead you:
Start stress-testing your budget now at 5%+,
Trim non-essential spending,
Increase payments slightly before renewal, you’re far better positioned to absorb the jump.
Why Delinquency Risk Is Still There
Mortgage delinquency rates are still low historically, around 0.22%, but they’re rising, with missed mortgage payments up over 20% year over year in early 2025 according to Equifax. Holding rates steady may stop things from getting dramatically worse, but it will not magically fix strained household budgets.
Key risks in a “higher-for-longer” world:
Elevated debt-to-income ratios.
Renewals at much higher rates than original mortgages.
Any job loss or income shock hitting already tight households.
This is exactly why planning matters more now than guessing where rates might go.
How to Prepare in a Stable-but-High Rate Environment
Here are focused moves that make sense in 2026:
Start renewal planning 6–12 months early
Get quotes, explore early renewals, and compare fixed vs. variable vs. hybrid options before you’re up against a deadline.
Shop aggressively across lenders
A stable policy rate doesn’t mean all lenders price the same. Use brokers, online platforms, and consolidators to force lenders to compete for your business.
Stress-test your payment
Run scenarios at your current rate and +1–2% to see what you can truly handle. Adjust your budget before the bank does it for you.
Use prepayment while you can
Even small increases to your payment or occasional lump sums now will lower your balance before renewal, reducing the impact of higher rates later.
Focus on cash flow, not timing the market
The Bank has signalled no hikes expected in 2026 but also no rush to cut. Build a plan that works at today’s rates instead of betting on fast relief.
If your mortgage renews in the next 18–24 months or you’re thinking about buying in this “paused but still pricey” rate environment, I can help you map out a clear plan. I’m Mr. Mortgage (Kechanth Kannan), and my job is to turn this kind of macro news into practical decisions for you.
📸 Instagram: @_mrmortgage
Let’s review your numbers, explore your options, and make sure 2026’s rate pause becomes an opportunity to strengthen your position—not a surprise hit to your budget.
