How could US tariffs impact Canadian mortgage rates?

This post was originally published on March 6, 2025, and has been updated multiple times to reflect developments in ongoing Canada–U.S. trade negotiations. 

Last updated August 28, 2026 to reflect the U.S. tariffs that took effect August 22, 2026 and Canada's retaliatory response

What goods are affected?

The White House released a fact sheet cataloguing the affected products, which economists estimate cover roughly 5% of Canada's exports to the U.S. — about $28 billion worth of goods. The lists span a wide range of items, including:

• Alcoholic beverages: Wine, beer made from malt, rum, vodka, brandy, tequila, and whiskies (including Irish and Scotch)
• Dairy and agricultural goods: Milk and cream, whey, molasses, and natural honey
• Sporting goods: Ice hockey and field hockey articles and equipment (other than balls and skates)
• Wood products: Nonconiferous fuel wood, wood charcoal, nonconiferous wood, standard pine wood mouldings, particle board, and certain fiberboard and plywood
• Consumer goods: Essential oils, perfumes, candles, dog leashes, and wigs, plus cement

Notably, energy, potash, fish, critical minerals, and products already subject to Section 232 tariffs are excluded.

Canada was previously exempt from the U.S.'s April 2025 "reciprocal" global tariffs. However, a 25% levy on non-CUSMA imports, a 25% tariff on foreign autos and parts, and a 25% tax on steel and aluminum have been in force. Canada has also maintained retaliatory tariffs on a range of U.S. goods, including American-made vehicles and auto parts. The latest 50% tariff announced by the U.S. marks a significant escalation of an already strained trade relationship. 

On August 25, 2026, Canada announced new, retaliatory counter-tariffs targeting more than 700 American products valued at $27.6 billion. The new tariffs, ranging from 15% to 50%, take effect on September 8, 2026, and include the doubling of duties on U.S. steel and aluminum to 50%.

Here's what today's borrowers should consider.

The first thing to understand is that fixed and variable mortgage rates respond to different economic forces.

Fixed mortgage rates are influenced primarily by Government of Canada bond yields. Variable mortgage rates, meanwhile, are tied to the Bank of Canada's overnight rate through lenders' prime rates. This distinction is particularly important during a trade war.

Fixed mortgage rates could become more volatile

When Government of Canada bond yields rise, fixed mortgage rates tend to rise with them. Tariffs pull bond yields in two competing directions:

• Upward pressure: Tariffs raise the cost of imported goods, raise prices, and can weaken the Canadian dollar. If investors expect inflation to remain elevated, they may demand higher yields on government bonds, pushing fixed mortgage rates higher.
• Downward pressure: A prolonged trade war slows exports, investment, consumer spending, and hiring. If markets become more concerned about a recession or expect the Bank of Canada to cut interest rates, bond yields can fall, putting downward pressure on fixed mortgage rates.

These competing economic forces could make fixed mortgage rates particularly sensitive to new tariff announcements, inflation data, employment figures, and changes in expectations for Bank of Canada policy.

For borrowers, that means mortgage rates could become quite volatile and move sharply in either direction over the coming months.

For now, discounted fixed-rate options below 4% remain available, including a two-year fixed mortgage rate of 3.89% and a three-year fixed rate of 3.94%.

 

Could tariffs cause the Bank of Canada to cut interest rates?

Potentially. Tariffs make the Bank's job considerably more difficult.

A trade war creates the potential for a stagflationary environment where weaker economic growth occurs alongside higher inflation.

The Bank of Canada faced a similar dilemma during the 2025 tariff escalation. In March 2025, it cut its overnight rate by 25 basis points to 2.75%, while warning that U.S. tariffs would likely slow economic activity and increase inflationary pressures. Governor Tiff Macklem subsequently said that broad, long-lasting tariffs could hurt Canadian output while pushing prices higher, creating a particularly difficult environment for monetary policy. 

If the current trade war significantly weakens the Canadian economy, the Bank could ultimately respond with rate cuts. But if tariff-related inflation becomes persistent, it may have less room to justify cutting rates. 

How will tariffs impact the housing market?

Canada's housing market was beginning to stabilize before the latest escalation. National home sales increased 0.5% in July, marking a fourth consecutive monthly increase. CREA also reported that listings declined while prices remained relatively stable, with several regional markets moving closer to balanced conditions. 

A prolonged trade war could interrupt that recovery. Weaker economic growth, job losses, and declining consumer confidence could cause prospective buyers to delay major purchases and reduce housing demand. That could put downward pressure on home prices in some markets.

But lower home prices don't necessarily mean better affordability.

Because tariffs are keeping fixed mortgage rates elevated, any softening in home prices may be offset by higher borrowing costs. At the same time, tariffs on construction materials could increase the cost of building new homes. As a result, affordability is unlikely to improve dramatically.

Should you lock in a mortgage rate now?

With mortgage rates facing competing pressures, predicting where rates will be over the next few months is quite difficult.

A rate hold provides valuable protection against that uncertainty. It lets you wait for more clarity without having to bet on which way mortgage rates will move next.

If you're buying a home or your mortgage is coming up for renewal, securing a mortgage pre-approval and rate hold now can allow you to lock in today's pricing for up to 120 days. If fixed rates rise during that period, you maintain access to the lower rate you've already secured. If rates fall, you can take advantage of the lower rate. 

With a two-year fixed mortgage rate of 3.89% and a three-year fixed rate of 3.94%, still currently available today, securing a rate can be a smart way to protect your borrowing power while the trade dispute plays out.

 

Also read:

• How US tariffs on Canada could impact you — and what you can do 
• Inflation and the Consumer Price Index in Canada
• Canada housing affordability and market trends