Mortgage Rate Forecasts vs Reality: What Brokers Should Watch in 2026

The Bank of Canada held its policy rate at 2.25% at its most recent announcement on March 18, 2026, with the next scheduled update coming on April 29, 2026. As of March 2026, Canadian borrowers face 5-year fixed mortgage rates ranging from approximately 4.50% to 4.89% at major banks, while variable rates track around prime minus 0.8% to 1.0% (roughly 3.45% to 3.65% with prime at 4.45%). This environment has reignited one of the most consequential conversations brokers have with clients: whether forecasts should influence the decision between fixed and variable mortgages.

The question matters more than ever because Canada’s Big Six banks are projecting relatively stable rates through 2026, with some forecasting modest increases toward the latter half of the year. But as recent history demonstrates, institutional forecasts do not always translate into optimal outcomes for borrowers, and the incentive structures behind those forecasts can sometimes reveal as much as the projections themselves. For brokers advising clients who are renewing mortgages in 2026 or purchasing homes, understanding why banks make the predictions they do can be critical when guiding clients through mortgage decisions that may affect them for years.

The 2022 Forecasting Failure: A Case Study

To understand today’s mortgage rate environment, it helps to revisit what happened the last time bank forecasts diverged significantly from actual rate outcomes. In early 2022, all six of Canada’s largest banks maintained remarkably optimistic forecasts about interest rate trajectories, even as inflation was already climbing toward 4.8%. These institutions, with vast economic research teams and sophisticated modelling capabilities, projected the Bank of Canada would raise rates to only approximately 1.25% by year’s end. That forecast implied a real interest rate (the policy rate minus inflation) of roughly -3.45%, meaning borrowing costs would remain well below inflation.

Such deeply negative real interest rates would have encouraged continued borrowing and spending, the exact opposite of what the Bank of Canada needed to cool an overheating economy. Yet the bank forecasts suggested exactly that scenario. Meanwhile, independent analysts with far fewer resources were warning much earlier that rates would need to rise substantially higher to bring inflation under control. The policy rate ultimately peaked at 5.0% in July 2023, four times higher than the major banks had projected just eighteen months earlier.

For brokers, this period highlighted how quickly rate expectations can shift and how difficult it can be to rely on forecasts when advising clients about long-term mortgage decisions.

The Consequences of Optimistic 2022 Forecasts

The implications of those 2022 forecasts were enormous for both borrowers and lenders. Variable-rate mortgages accounted for more than 50% of mortgage originations in early 2022, driven partly by the significant spread between fixed rates (around 2.74% for five-year terms) and variable rates (approximately 1.6%). Many borrowers chose variable-rate products partly on the expectation that rates would remain relatively low.

As rates climbed rapidly throughout 2022 and 2023, many variable-rate holders experienced payment shock. Some saw payments increase by 40% to 60% within eighteen months as the prime rate rose from 2.45% in early 2022 to 6.95% by mid-2023.

For brokers, this period reinforced the importance of preparing clients for multiple rate scenarios rather than relying solely on prevailing forecasts.

Understanding Institutional Incentives

This historical analysis is not meant to suggest that banks coordinated efforts to mislead borrowers. Rather, it highlights that institutional forecasts exist within broader business contexts. Financial institutions operate within complex models in which forecasting decisions can affect profitability, balance sheet management, and risk exposure.

When a major bank publishes a rate forecast, that forecast may reflect genuine economic analysis. However, those projections also occur in an environment where lenders’ profitability can be influenced by borrowers’ responses to different mortgage products.

For brokers, understanding this context can be helpful when discussing forecasts with clients and explaining why rate predictions should be interpreted cautiously.

The 2026 Scenario: Different Incentives, Same Questions

Fast forward to March 2026, and the mortgage environment presents a different set of considerations. With the Bank of Canada holding rates at 2.25%, a level considered mildly stimulative, and fixed mortgage rates ranging from approximately 4.50% to 4.89%, brokers once again find themselves guiding clients through the fixed-versus-variable decision.

If a borrower chooses a five-year fixed mortgage at 4.59% today and the Bank of Canada unexpectedly cuts rates to 1.5% due to an economic downturn within the next eighteen months, that borrower could find themselves locked into a rate significantly higher than prevailing variable rates. If they attempt to break the mortgage to refinance, they may face an Interest Rate Differential penalty of $20,000 to $30,000 on a $500,000 mortgage.

This type of scenario highlights why brokers often emphasize flexibility and scenario planning when advising clients about rate structures.

Variable-rate mortgages, by contrast, typically adjust automatically when the Bank of Canada changes rates. Borrowers can also usually break variable mortgages with a penalty of only three months’ interest, which provides more flexibility if economic conditions change.

Current Bank Forecasts and Market Reality

As of March 2026, major Canadian banks are projecting relatively stable rates through the year, with some suggesting modest increases toward year-end. National Bank of Canada Capital Markets, for example, expects the overnight policy rate to potentially increase by 0.5% in the fourth quarter of 2026, ending the year around 2.75%. Other bank economists suggest the current 2.25% rate may hold steady through most of 2026, given ongoing trade tensions, geopolitical uncertainty, and moderating inflation.

These forecasts may ultimately prove accurate. However, as demonstrated in 2022, forecasts can change quickly when economic conditions shift.

Several economic signals suggest rates could move lower rather than higher if economic conditions weaken. The spread between current fixed rates and variable rates remains relatively wide at approximately 0.9% to 1.2%, with five-year fixed rates around 4.39% to 4.64% and variable rates around 3.45% to 3.65%.

Bond market signals also offer insight. The Government of Canada five-year bond yield, which typically guides fixed mortgage pricing, has been trading within a range that suggests bond investors see limited potential for significant rate increases over the medium term.

For brokers, monitoring bond markets alongside lender forecasts can provide a more complete view of potential mortgage rate trends.

Scenario Analysis: Fixed Versus Variable in 2026

To illustrate the potential outcomes brokers often model for clients, consider a borrower with a $500,000 mortgage choosing between a five-year fixed rate at 4.59% and a variable rate at 3.55% (prime at 4.45% minus 0.9%).

Scenario 1: Rates Hold Steady

If the Bank of Canada maintains its policy rate at 2.25% (prime at 4.45%) for the full five-year term, the variable-rate borrower would pay approximately $2,564 monthly, while the fixed-rate borrower would pay approximately $2,773 monthly. Over sixty months, the variable-rate borrower would save approximately $12,540 in total payments.

Scenario 2: Gradual Rate Increases

If the Bank of Canada gradually raises rates, reaching 3.25% by late 2027 and holding there for the remainder of the term, the variable rate would climb to approximately 4.55% by year two. Monthly payments would rise from $2,564 to approximately $2,769. In this scenario, both options end up relatively close over the full term.

Scenario 3: Economic Downturn and Rate Cuts

If economic conditions weaken and the Bank of Canada cuts rates to 1.5% by late 2026 and holds there, the variable rate could fall to approximately 2.8%. Monthly payments would drop to around $2,305. Over five years, the variable-rate borrower could save approximately $28,080 compared with the fixed option.

These types of scenario analyses help brokers demonstrate how rate paths can affect mortgage costs over time.

Strategic Considerations for Clients

Given the uncertainty surrounding rate forecasts, brokers often focus discussions on a client’s financial flexibility and risk tolerance rather than attempting to predict exact rate movements.

Clients with tighter budgets or limited financial cushions may prefer the predictability of fixed-rate mortgages. Others with stronger financial flexibility and higher equity positions may be more comfortable considering variable-rate options.

Another important consideration is the cost of rate certainty. The current spread between fixed and variable rates represents the price borrowers pay for predictable payments. On a $500,000 mortgage, the spread of roughly 0.9% to 1.2% represents approximately $4,500 to $6,000 per year in additional interest for fixed-rate stability.

Helping clients understand this trade-off is often a key part of the broker’s advisory role.

The Role of Licensed Mortgage Brokers

This is where licensed mortgage brokers provide significant value. Brokers can compare multiple lender options, model different rate scenarios, and evaluate features such as penalty calculations, prepayment privileges, and portability.

These factors can meaningfully influence the true cost of a mortgage over time. For example, some lenders calculate Interest Rate Differential penalties more favourably than others, which can reduce the cost of breaking a fixed-rate mortgage if circumstances change.

Brokers can also help clients evaluate mortgage products from a range of lenders, including Marathon Mortgage, as part of a broader comparison that considers both rates and product features.

Looking Beyond Rate Predictions

The key lesson from the forecasting errors of 2022 is not that bank economists lack expertise, but that forecasts are inherently uncertain. Economic conditions evolve, policy decisions change, and unexpected global events can quickly shift interest rate paths.

For brokers advising clients in 2026, the focus often shifts from predicting exact rate movements to helping clients understand risk, flexibility, and affordability under different scenarios.

In a market environment shaped by evolving economic conditions, this advisory approach remains one of the most valuable services brokers provide.

Conclusion

Mortgage rate forecasts should be viewed as one input among many when advising clients. As the experience of 2022 demonstrated, forecasts can miss the mark when economic conditions shift unexpectedly.

For brokers working with clients in 2026, the fixed-versus-variable decision ultimately comes down to each client’s financial flexibility, risk tolerance, and long-term financial goals. Some borrowers may value the stability of fixed rates, while others may prioritize flexibility and potential savings from variable products.

By modelling different scenarios and comparing options across multiple lenders, brokers can help clients make more informed mortgage decisions regardless of where interest rates ultimately move.

Disclaimer: Information in this article is for general educational purposes only and does not constitute financial or legal advice. Marathon Mortgage products are available through licensed mortgage brokers. All terms, conditions, and eligibility criteria apply. Rates and policies are subject to change without notice. Speak with your licensed mortgage broker to determine the best mortgage solution for your specific circumstances.