Will a Democratic Congress lower Canadian mortgage rates?

Key takeaways:

• Democrats can pass bills to end the war in Iran and repeal tariffs on Canadian goods.
• Donald Trump can veto Democrat-led bills without the fear of having his veto overridden by a Congressional minority.
• The quickest path to lower mortgage rates would be an end of the Iran war and a rapid decline in oil prices.

If you felt a rumble on the night of November 3, 2026, it might have been the tectonic shift going down in the U.S. Congress. The aftershocks could move the Canadian mortgage market.

In a historic swing, voters handed control of the House of Representatives and the Senate to the Democratic Party. At the time of writing, Democrats held a 228-139 advantage in the House and a 54-44 edge in the Senate, securing a majority in both chambers.

Two key factors that fueled Republican losses were Donald Trump’s handling of the economy and the war in Iran. According to BBC polling, 74% of American voters said the war was a crucial or major factor in their vote for Congress, while 65% said Trump’s policies have worsened economic conditions in the U.S. 

Both issues have played a role in destabilizing Canadian mortgage rates.

Could a Democratic-led Congress reverse the actions that made mortgages more expensive? Possibly. Rather than guessing the future of U.S. policy under Trump, let’s consider what has to happen for rates to fall and how likely those outcomes are. 

What U.S. policies need to change for Canadian mortgage rates to fall?

For mortgage rates to decline significantly, the war in Iran has to end without inflicting further damage on Middle East energy infrastructure. 

Oil prices due to the war have been the main driver of higher mortgage rates: they raised government bond yields, which lenders use to price fixed rates, and created an inflationary environment that triggered the Bank of Canada’s first rate hike in over three years. That increase added 25 basis points to variable mortgage rates in October 2026.

An end to Trump’s other war, his economic campaign against Canada, may also help bring rates down, but the connection is a little more tenuous. 

Trade uncertainty can cause volatility in the bond market, but it might move yields up or down. A stable trade relationship with the U.S. could calm bond markets and instill more predictability into mortgage rates. 

As a side note, a mutually beneficial trade deal with the U.S. would likely lift home sales by dispelling the economic uncertainty that is keeping some home buyers on the sidelines. In July, an EQ Bank/Angus Reid survey found that 21% of Canadians who were delaying milestones, including homeownership, were doing so because they were waiting for trade tensions with the U.S. to cool.

How could a Democratic Congress bring down Canadian mortgage rates?

Several scenarios that impact Canadian mortgage rates could play out in the coming months, but they’re all theoretical and at the mercy of U.S. politics. Here are three possibilities, listed in order from least likely to most likely outcome:

Scenario 1: Riding the blue wave to lower rates

• Legislation that ends the war in Iran and unwinds Trump’s tariff policies breezes through both chambers of Congress. 
• Trump accepts the will of the American voters and signs the legislation. 
• The war ends and oil prices fall, dragging bond yields and fixed mortgage rates with them. Inflation ebbs and future Bank of Canada rate hikes are no longer necessary.

Scenario 2: Trump takes the reins

• Trump, seeking wins he can take credit for, instructs his negotiators to quickly hammer out an end to the Iran war and a new trade deal with Canada without input or approval from Congress. 
• Bond yields, fixed rates and inflation all decline.

Scenario 3: More of the same

• Trump digs in his heels on tariffs, the trade war with Canada and Iran. 
• He vetoes Democratic legislation that would resolve these issues and instead seeks avenues for maintaining them. 
• Oil prices and bond yields remain elevated and volatile, preventing fixed rates, inflation and variable rates from falling.

Why could Canadian mortgage rates stay high?

There are three reasons to bet against rates coming down due to the “blue wave” that swept Congress:

• Trump’s veto power. Trump has the power to veto any bill he disagrees with. The Democrats don’t have the two-thirds majorities in the House and Senate required to overturn presidential vetoes.

1. • Timing. The newly elected members of the House and Senate won’t be sworn in until January 3, 2027. They will have no influence over these rate-shaking issues until then. 

• Executive workarounds. Neither Trump’s trade war with Canada nor his actual war with Iran was authorized by a vote in Congress. (Trump used the Tariff Act of 1930 to enact his latest levies on Canadian goods.) He may seek obscure or unprecedented ways to continue both conflicts.  

What can home buyers do when mortgage rates are unpredictable?

The lesson behind all this theorizing is that Canada’s mortgage rate outlook remains unpredictable. In the current environment, it’s important to control what you can by being proactive.

Getting a pre-approval when rates are volatile just makes sense. It costs nothing and can protect you against future rate increases for up to 120 days. Knowing what your rate might be when you eventually make an offer on a home can provide some very useful clarity. 

If a home purchase is in your near future, tend to your savings and debts now. Ensure you have the funds to cover a down payment and your closing costs, and pay down your debt as much as is feasible. If rates fall and the housing market wakes up, you’ll want to take action before home prices firm up.