The Rate Cycle in Review: From 5% to 2.25%, Three Lessons for Buyers
Understanding what the central bank already did beats guessing its next move
What did this Canadian rate cycle actually do, and where are we now?
A full cycle from ultra-low rates to rapid hikes to gradual cuts. Per the Bank of Canada, the policy rate sat at a record-low 0.25% in 2020–2021, then rose rapidly from 2022 to fight inflation, peaking near 5.00% in mid-2023; as inflation cooled it was cut gradually, reaching 2.25% in the second half of 2025, and was held at 2.25% at both the March and April 2026 decisions.
Source: Bank of Canada Policy Interest Rate (March 18 and April 29, 2026 announcements).
Over the past four years, mortgage holders rode a rollercoaster: near-free borrowing, then the fastest hikes in decades, and now a gradual descent. Rather than guess the central bank’s next step every day, it’s more useful to look back at what the cycle taught us. Here are three lessons most relevant to buyers.
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The cycle in four phases
Phase 1 (2020–2021): rates pinned at a record-low 0.25%, fueling a buying surge. Phase 2 (2022–2023): inflation spiked and the Bank delivered its fastest hikes in decades, to about 5%. Phase 3 (2024–2025): as inflation cooled, the Bank began cutting. Phase 4 (late 2025 to now): rates settled back to 2.25% and held.
⚠️Renewal risk is real: a mortgage taken at a low rate may renew years later at a higher one. Always budget room for a higher renewal rate.
Lesson 1: money borrowed at low rates is repaid at future rates
Lesson 2: fixed vs variable has no permanent winner
Lesson 3: rates are just one variable
💡 The line to remember: you control leverage and buffer, not rates. Setting a payment you can carry even if renewal rates rise matters far more than calling the Bank’s next move.
Frequently Asked Questions
Will rates keep falling?
That depends on inflation, employment, and external factors like trade policy — no one knows for sure. The Bank has signaled it will respond flexibly to the data. Rather than predict, build your finances to withstand volatility.
Is the policy rate the same as my mortgage rate?
No. The Bank’s policy rate influences banks’ prime rate and therefore variable mortgages; fixed mortgages track bond-market yields more closely. Related, but not the same.
With rates easing, is now a good time to buy?
Lower payments do improve affordability, but whether to buy still depends on your holding period and cash flow. Rates are a tailwind, not a free pass.
Arthur Zhao
Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · GUILD Elite
VP & Branch Manager, Bay Street Group Inc.
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