At Spark Mortgage, we’re dedicated to helping you navigate economic changes that could affect your homebuying or refinancing journey. With tariffs making headlines in 2025, many Canadians are asking: How will tariffs impact interest rates and mortgage rates? Let’s break it down clearly and provide actionable insights for you.
What Are Tariffs, and Why Do They Matter?
Tariffs are taxes on imported goods, often used to protect local industries or raise government revenue. In 2025, proposed tariffs—especially on imports from the U.S., Mexico, and China—have raised concerns about their economic impact in Canada. These tariffs could increase the cost of goods, fuel inflation, and create uncertainty in financial markets, all of which could influence interest rates and mortgage costs.
The Ripple Effect on Inflation
Tariffs act like a tax on consumers, raising the price of imported products. For example, a 25% tariff on U.S. lumber or a 10% tariff on Chinese electronics could drive up costs for Canadian households and businesses. Economists estimate that such tariffs could push Canada’s inflation rate up by 0.5–0.7% by late 2025 if fully implemented.
Higher inflation pressures the Bank of Canada (BoC) to adjust its monetary policy. The BoC uses the overnight rate to manage inflation, which directly affects borrowing costs, including mortgage rates. If tariffs push inflation above the BoC’s 2% target, the bank may pause rate cuts or even raise rates to curb price growth, potentially keeping mortgage rates higher.
Economic Growth and Uncertainty
While tariffs may drive inflation, they can also slow Canada’s economy. Higher costs for imported goods reduce business investment, and trade policy uncertainty can dampen consumer and corporate spending. The April 2025 tariff announcements, for instance, led to a notable drop in Canadian business confidence, echoing disruptions seen during past trade disputes.
A weaker economy typically prompts the BoC to lower interest rates to stimulate growth. However, tariffs create a complex challenge: balancing rising inflation against the risk of a slowdown. BoC Governor Tiff Macklem has described tariffs as a “dual-edged sword,” potentially forcing the bank to delay rate cuts. In 2025, the BoC has held the overnight rate steady at around 4.25%, reflecting caution amid trade uncertainties.
What Does This Mean for Mortgage Rates?
Mortgage rates in Canada are closely tied to government bond yields, particularly the 5-year Government of Canada bond, which responds to inflation expectations and economic conditions. Here’s how tariffs could influence rates:
- Short-Term Pressure: Tariff-driven inflation fears have already nudged bond yields upward in early 2025, contributing to slight increases in fixed mortgage rates. Some analysts predict a 0.1–0.2% uptick in rates if inflation remains elevated.
- Long-Term Possibilities: If tariffs significantly slow Canada’s economy, demand for bonds could rise as investors seek safety, potentially lowering yields and fixed mortgage rates over time. A weaker economy might also prompt the BoC to cut rates, benefiting variable-rate mortgage holders.
- Regional Impacts: For Spark Mortgage clients in trade-dependent regions like Ontario’s manufacturing hubs or British Columbia’s resource sectors, tariffs could hit local economies harder, affecting housing demand and affordability.
Historical Context: Learning from the Past
Canada’s experience with U.S. tariffs in 2018–2019 (e.g., on steel and aluminum) provides perspective. Those tariffs led to modest inflation but didn’t significantly alter BoC policy, with the bank cutting rates in 2019 to support growth as trade tensions eased. Today’s proposed tariffs are broader, and with inflation already above 2%, the BoC may lean toward maintaining or raising rates rather than cutting them soon.
What Should Canadian Homebuyers and Homeowners Do?
With tariffs creating uncertainty, flexibility is essential. Here are practical tips from Spark Mortgage to help you prepare:
- Consider Locking in Rates: If you’re buying or refinancing, a fixed-rate mortgage can shield you from potential rate hikes driven by tariff-related inflation. Fixed rates offer peace of mind in uncertain times.
- Evaluate Variable Rates Carefully: Variable-rate mortgages could benefit from future BoC rate cuts if tariffs slow the economy. However, they carry risks if inflation keeps rates high. A Spark Mortgage advisor can help you assess your options.
- Stay Informed: Monitor inflation updates (like the Consumer Price Index) and BoC announcements. These will signal whether tariffs are driving rates up or if economic weakness might lower them.
- Account for Local Impacts: If you’re in a trade-sensitive area, plan for potential economic shifts. Our team can customize your mortgage strategy to fit your needs.
The Spark Mortgage Advantage
At Spark Mortgage, we’re here to guide you through economic changes with expert advice and competitive rates tailored to Canadians. Whether you’re a first-time buyer or a homeowner exploring refinancing, our team tracks trends like tariffs to simplify your decisions. Let us help you find a mortgage that aligns with your goals, no matter what 2025 holds.
Stay Ahead with Spark Mortgage
Tariffs are just one factor in Canada’s economic landscape, but their potential to affect inflation, growth, and interest rates is significant. As the Bank of Canada navigates these challenges, Spark Mortgage is committed to keeping you informed and prepared. Contact us today to explore how tariffs might impact your mortgage plans, and let’s spark your path to homeownership together.
