Mortgage Blog
Making Sure your Mortgage Fits
How Trump’s Tariffs Could Shake Up Mortgage Rates
January 30, 2025 | Posted by: Simon Lyn
At Wednesday’s BoC press conference, Governor Tiff Macklem admitted he’d be closely watching the news if Trump imposes tariffs on Saturday—because even the BoC isn’t sure how inflation will react.
The Uncertainty of Inflation & Rates
The BoC's key takeaway: monetary policy can’t solve both plunging growth and surging inflation. But if tariffs spike core inflation beyond 3%, markets may price in rate hikes—despite high unemployment. However, history shows inflation effects can take over a year to play out.
Economists generally expect rates to drop below 2.75%, but the real question is what happens next. If tariffs trigger inflation, government stimulus could add fuel to the fire, and rate cuts might not last as long as expected.
What This Means for Mortgages
For borrowers navigating uncertainty, here are key strategies:
- Variable rates remain viable for risk-tolerant borrowers who value flexibility.
- Fixed payment variables (like BMO’s options) help with budgeting predictability.
- Locking in a 5-year fixed rate before closing provides security but allows room to switch later if needed.
- Early renewal options should be explored if inflation rises and yields hit new highs.
- 3-year fixed vs. variable rates currently have similar projected costs, but penalties and conversion terms matter.
- A secured or unsecured line of credit can provide extra liquidity during economic turbulence.
- Extending amortization increases cash flow flexibility.
- Hybrid mortgages (half fixed, half variable) offer diversification, reducing risk in uncertain times.
The Bottom Line
If Trump’s tariffs become a full-blown trade war, expect economic turbulence. While rates may drop initially, they could rebound within 9-18 months. Borrowers should plan for uncertainty and choose mortgage strategies that balance flexibility with security.
