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.

UPDATE: On July 20, 2026, the U.S. announced it will impose an additional 50% tariff on a vast majority of Canadian goods, effective August 19, 2026. 

The Trump administration says the move is a response to steps Canada has taken in the trade dispute — including provinces pulling American alcohol from store shelves, Canada's tariffs on U.S.-made vehicles and auto parts, and limits on how much American dairy can enter the country. Unlike some earlier tariffs, these new ones apply even to goods that are normally protected under the Canada-U.S.-Mexico (CUSMA) trade agreement. 

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. 

Market reaction to the newest round of U.S. tariffs was negligible. On July 22, the S&P 500, Dow Jones Industrial Average, and Nasdaq all posted minimal moves, while Canadian equities advanced. The S&P/TSX Composite Index rose 1.2%, its strongest one-day gain in more than a month, due to strength in the technology and gold sectors.

Here's what today's borrowers should consider.

Fixed mortgage rates and the bond market

Fixed mortgage rates in Canada are priced off Government of Canada bond yields, particularly the five-year yield. Historically, escalations in the trade war have pushed bond yields down as investors seek "safe haven" assets amid recession and stagflation fears — which in turn puts downward pressure on fixed mortgage rates.

The newest slew of tariffs announced by the U.S. had a muted effect on Canadian bond yields. Instead, bond yields have been climbing since July 7 following the renewed conflict between the U.S. and Iran. Concerns that higher oil prices could fuel inflation have kept yields elevated, increasing funding costs for fixed mortgage rates. While bond yields have trended higher over the past month, they remain below the peaks reached earlier this spring when the conflict first started. The lowest available five-year fixed rate now sits at 3.99%, with most lenders having increased their rates above 4% as bond yields rose in early July. The window for borrowers hoping to lock in a fixed rate under 4% is closing.

What's next from the Bank of Canada?

On July 15, 2026, the Bank of Canada held its key overnight rate at 2.25%, in a move that came as little surprise to markets. The Bank's message was one of cautious optimism: there are encouraging signs the economy is regaining momentum after a sluggish start to the year, and inflation is expected to gradually moderate from its recent highs. That said, policymakers continue to face considerable uncertainty stemming from the Iran–U.S. conflict and increasingly fractious U.S. trade policy.

For Canadians with variable-rate mortgages, the rate hold means continued stability — no change to their interest rate, monthly payment, or the portion of that payment servicing interest. The Bank has consistently signalled that monetary policy alone can't counter a trade war, and that its response would need to be paired with fiscal measures such as government spending.

With the new tariffs set to take effect on August 19, and premiers meeting with Prime Minister Carney to weigh a response, the BoC will be keeping a close eye on the impacts to the economy, inflation, and Canadian growth as it weighs its next moves.

How will tariffs impact the housing market?

After a subdued start to 2026, the Canadian housing market seemed to regain some momentum. Home sales edged up 0.5% in June, marking a third consecutive monthly increase and leaving national sales activity roughly 7% above their March level.CREA's Senior Economist Shaun Cathcart attributed part of the recovery to greater confidence around the interest rate outlook, with expectations for further BoC hikes having largely faded following July's rate hold.

Even so, CREA has once again lowered its 2026 forecast, now expecting a 1.4% decline in home sales from 2025. The downgrade reflects a weaker-than-expected first half, slower population growth, and softer activity in Quebec and Atlantic Canada. Ontario is the only province expected to see an annual increase in home sales. The national average price is forecasted to rise 1.1% to $686,710 in 2026, with the recovery expected to broaden into 2027. The renewed tariff escalation injects fresh uncertainty into the outlook just as Canada's housing market had begun to stabilize. Until there is clarity and stability in U.S.-Canada trade relations, home buyers are likely to remain hesitant about entering the market. Canadians waiting for significantly lower mortgage rates or home prices may find that affordability has already improved as much as it is likely to this year. Those planning to buy may benefit more from comparing mortgage rates and securing a rate hold to safeguard against future rate increases in the coming months. 

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