The improvement in affordability comes after a turbulent period for Canadian real estate. The pandemic-era housing boom, fueled by record-low borrowing rates of 0.25%, sent demand and prices soaring. When inflation spiked to a 40-year high of 8.1% in June 2022, the Bank of Canada responded with a rapid series of rate hikes, pushing its overnight rate to 5% by mid-2023. This cooled the market but also made mortgages harder to qualify for.
Since then, the economic climate has shifted. Inflation dropped to 1.9% in August 2025, and the Bank of Canada has cut its rate to 2.5% after seven reductions since June 2024. Bond yields have also declined, prompting lenders to trim fixed mortgage offerings. The best five-year fixed insured rate now sits at 3.94%, according to Ratehub.ca.
The mortgage stress test remains a key barrier for many would-be buyers. Borrowers must prove they can afford payments at their contract rate plus 2%, or the minimum qualifying rate of 5.25%—whichever is higher. In practice, most are qualifying at rates well above 6%.
Looking ahead, July’s gains may be fleeting. Fixed mortgage rates began rising again in August as bond yields ticked up, pushing the lowest insured five-year rate to 4.04%. Still, with inflation cooling, the Bank of Canada may have room for further cuts, which could ease borrowing costs if bond yields respond.