The Bank of Canada cut its overnight rate seven times between June 2024 and October 2025, bringing it from 5.0% down to 2.25%. Then it stopped. The rapid cutting phase is over. The BoC held at 2.25% through its January, March, and April 2026 meetings, and the consensus among Canada's major banks is that rates are more likely to drift higher than lower from here.
For rental property investors, this shift changes the calculus on three fronts: what renewal rates will look like, whether fixed or variable makes more sense on a new purchase, and how to set the rate assumption in a long-term deal model. This post covers each.
Where the Policy Rate Stands and What Moved It
The Bank of Canada's overnight policy rate sits at 2.25% as of April 29, 2026. The BoC cut aggressively through 2025 in response to a slowing economy, declining inflation from its 2022 peak of 8.1%, and the drag from US tariff uncertainty. Canada's GDP contracted 0.6% in Q4 2025, and unemployment has held in the 6.5% to 7% range through early 2026.
Two new factors complicate the outlook. A Middle East conflict has pushed crude oil above $100 USD per barrel, injecting inflation risk just as the BoC had finished its easing cycle. Canadian CPI rose to 2.4% year-over-year in March 2026, up from 1.8% in February. The BoC has signaled it will look through the near-term energy shock, but only if it does not become persistent inflation.
The result is a policy rate that is on hold, at a level the BoC itself describes as the low end of the neutral range (2.25% to 3.25%), with a bias that has shifted from dovish to genuinely neutral. Governor Macklem has made clear: if energy prices stay elevated and feed into broader inflation, the Bank is prepared to raise rates again.
What the Big Banks Are Forecasting
The Big 6 bank forecasts as of May 2026 reflect significant divergence, which itself is a signal about how uncertain the outlook is.
| Institution | 2026 Year-End Policy Rate | 2027 Outlook |
|---|---|---|
| RBC Economics | 2.25% (hold) | Rising to 3.25% by end of 2027 |
| TD Economics | 2.25% (hold) | Hold through end of 2027 |
| Scotiabank | 2.75% (+3 hikes H2 2026) | Continued tightening |
| BMO Capital Markets | 2.25% (hold) | Averaging 2.4% in 2027 |
| CIBC Capital Markets | 2.25% (hold) | Rising to 2.75% in 2027 |
| National Bank | 2.75% (+2 hikes Q4 2026) | 2.75% by end of 2027 |
The majority view is a hold at 2.25% for the rest of 2026, with modest tightening in 2027. Scotiabank and National Bank are the outliers on the hawkish end, both forecasting hikes before year-end. Markets have priced in roughly two hikes in the second half of 2026. The point is not which forecast is right. It is that the directional bias has clearly shifted: further rate cuts are off the table barring a deep recession, and meaningful hikes are a genuine possibility.
Fixed vs Variable: Where Mortgage Rates Actually Sit
The policy rate does not set fixed mortgage rates. Fixed rates are priced off Government of Canada bond yields, particularly the 5-year bond yield. Bond markets have already priced in both the end of the cutting cycle and the risk of future hikes. As a result, fixed rates have risen 35 to 40 basis points since the geopolitical shock began, even with the policy rate on hold.
As of May 2026, the best available 5-year fixed rates for investment properties range from approximately 4.3% to 4.8% depending on lender and loan-to-value. Variable rates on investment properties sit around 4.0% to 4.5% (prime minus a discount, with prime at 4.45%). The spread between fixed and variable has narrowed significantly from the wide gap that made variable attractive in 2024.
Most forecasters expect 5-year fixed rates to remain near current levels or drift modestly higher through the end of 2026. By 2028, if the BoC has hiked two or three times as some forecast, fixed rates could approach 4.7% to 5.1%. A return to 4.0% fixed would require a severe recession, which is not the base case.
What This Means for Investors Renewing in 2026
Over one million Canadian households are expected to renew their mortgages in 2026. Many of those renewals are investment properties that were financed at 2% to 3% fixed rates in 2021 and 2022. Renewing at 4.3% to 4.8% on the same balance represents a material increase in monthly carrying costs.
The math is straightforward. On a $500,000 mortgage balance renewing from 2.5% to 4.5% on a 25-year amortization, monthly payments increase by approximately $540. On a property generating $2,200 per month in rent, that swing can turn a modestly cash flow positive deal into a meaningfully negative one. For a full breakdown of how to model the renewal impact, see the mortgage renewal wave hitting Ontario landlords in 2026.
Investors renewing now face a choice: lock in a 5-year fixed at current rates and accept certainty at a higher rate, or take a variable and bet on the BoC holding or cutting. Given that the consensus points to a hold or modest hike, the variable vs fixed decision is closer than it has been in several years. Neither is obviously correct. The right answer depends on your cash flow position and your tolerance for rate risk.
One option worth modeling: a shorter 2 or 3-year fixed term. If rate hikes materialize and then reverse in 2028 or 2029, a shorter term captures today's certainty without locking in for the full 5 years through an uncertain period. Current 2-year fixed rates for investment properties are approximately 4.2% to 4.6%.
What Rate to Use When Analyzing a New Deal
For a new purchase, lenders will qualify you using the stress test rate: the greater of your contract rate plus 2%, or 5.25%. With 5-year fixed rates around 4.5%, the stress test floor is 6.5%. This is the rate you should use to determine whether you can be approved and whether the deal survives adverse conditions.
For the deal itself, it is reasonable to model at your actual contract rate for the initial term, then at a stepped-up rate for the renewal. Given the current consensus, modeling the renewal at 4.5% to 5.0% on a 5-year term starting in 2031 is neither pessimistic nor naive. It is consistent with what the bond market is pricing for medium-term yields.
The scenario most investors are not modeling: a renewal in 2031 at 5.5% to 6.0%, which would occur if the BoC has hiked two or three times and inflation has proven stickier than expected. This is not the base case, but it is not implausible. The stress test exists precisely to force this calculation. Run it before you buy.
The Rate Environment Is Not Going Back to 2021
The 2020 to 2022 rate environment was anomalous. Sub-2% fixed rates for investment properties were a function of emergency-level monetary policy that has since been fully unwound. Most independent forecasters agree: the structural floor for Canadian mortgage rates in a normal economic environment is 4.0% to 4.5% fixed, not 2.0% to 2.5%.
This matters for how you set the long-term rate assumption in your deal model. If you bought in 2019 or earlier and still have a low blended rate on your mortgage, that advantage disappears at renewal. If you are buying today, the rate environment you are entering is closer to the historical norm than the 2021 anomaly. Build your analysis around that assumption, not the low end of the range.
Rental Analyst's Renewal tab lets you set your renewal rate, see the cash flow impact at renewal, and chain multiple renewal scenarios to model the full arc of a 10 or 15-year hold. The Hold, Sell, or Refinance framework then lets you compare whether holding through that renewal makes more sense than selling or refinancing at a decision point.
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This post is for informational purposes only and does not constitute financial, legal, mortgage, or tax advice. Rate forecasts sourced from publicly available bank economist reports as of May 2026. Bank of Canada policy rate data from bankofcanada.ca. Mortgage rate ranges are indicative and vary by lender, LTV, amortization, and borrower profile. Consult a licensed mortgage broker before making any financing decision.