Bank of Canada Holds Rates Steady Again
The Bank of Canada announced its latest interest rate decision by maintaining its benchmark policy rate at 2.25%, marking the fifth consecutive rate hold since December 2025.
The decision was widely expected as policymakers continue balancing inflation concerns against economic uncertainty.
Key factors influencing the decision include:
• Strong labour market performance, with approximately 88,000 jobs added last month.
• Ongoing geopolitical tensions in the Middle East that continue to influence energy prices and inflation expectations.
• Inflation risks that remain present despite some moderation in core inflation measures.
• Financial markets broadly expecting rates to remain unchanged through much of the remainder of 2026.
For homeowners with variable-rate mortgages and HELOCs, the latest announcement means borrowing costs remain unchanged for now. Fixed mortgage rates are also unlikely to be affected directly by the Bank’s decision, as they continue to be driven primarily by bond market movements.
The Bank is scheduled to make four additional rate announcements later this year, and markets will continue watching closely for any signals regarding future policy direction.
HST Relief Draws Buyers to New Homes, but Appraisal Risk Remains
Ontario’s expanded HST rebate program has created new opportunities for buyers considering newly built homes.
Eligible purchasers may receive significant tax savings on qualifying new homes, helping reduce upfront costs and improving affordability for many first-time buyers.
While the rebate has generated considerable interest, buyers should remain aware of an important financing risk that continues to affect many pre-construction purchases: appraisal shortfalls at closing.
Important considerations include:
• The rebate reduces taxes payable but does not influence a lender’s property valuation.
• If a home's appraised value is lower than the original purchase price at closing, buyers must cover the difference themselves.
• Appraisal challenges have become more common in certain condo, townhouse, and suburban markets where values have softened since peak pricing periods.
• Buyers may require additional cash beyond their planned down payment and closing costs if an appraisal gap occurs.
Mortgage professionals continue recommending that pre-construction buyers review their financing plans well before closing and maintain additional financial reserves whenever possible.
The HST rebate can provide meaningful savings, but it should be viewed as one component of a broader financial strategy rather than a complete solution to affordability concerns.
Bond Yields Reach Their Highest Level of 2026
One of the most important developments affecting mortgage borrowers this month has occurred outside the Bank of Canada altogether.
The five-year Government of Canada bond yield, which heavily influences fixed mortgage pricing, has climbed to its highest level of the year.
Several factors have contributed to the increase:
• Inflation accelerated during the spring, driven largely by higher energy costs.
• Ongoing geopolitical tensions have increased uncertainty in global financial markets.
• Investors are demanding higher yields to compensate for inflation risks.
• Bond markets are increasingly expecting interest rates to remain elevated for an extended period.
As bond yields have risen, lenders have responded by increasing fixed mortgage rates.
While variable-rate mortgages remain relatively stable due to the Bank of Canada's rate hold, fixed-rate borrowers have seen less favourable pricing in recent weeks.
This development highlights an important reality for borrowers: fixed mortgage rates are determined largely by bond market conditions rather than by the Bank of Canada's overnight rate.
For those approaching a mortgage renewal or considering a home purchase, understanding the relationship between bond yields and fixed mortgage rates has become increasingly important in today's market.