The global trade landscape has changed dramatically in recent months. President Trump’s trade policies have disrupted established economic norms and eroded predictability—a vital ingredient for businesses, investors, and households. With tariffs looming and political rhetoric driving uncertainty and volatility, Canadian borrowers face new challenges when choosing the correct mortgage term over their 25-year or 30-year amortization period.
Uncertain Trade Policies and Economic Confidence
An irrational view of bilateral trade is at the heart of Trump’s trade philosophy. He views any country with a trade surplus against the United States as “ripping off” American workers. For Canada, this has led to contradictory policies. While Canada runs a trade deficit with the US (excluding oil and gas), the overall surplus exists because the US depends on Canadian energy exports. Instead of imposing heavy tariffs on oil and gas—a move that would undoubtedly hurt American consumers—tariffs have been capped at 10%. This selective approach exposes the incoherence of a policy driven more by political optics than sound economic logic.
Adding to the confusion are Trump’s unfounded claims about fentanyl smuggling and even musings about annexing Canada. While such rhetoric might seem absurd, it sends shock waves through markets. Predictability, a cornerstone for economic stability, has become the casualty of these tariff threats. As companies and households adjust to the possibility of sudden policy shifts, confidence in long-term investments—including those in the Canadian mortgage market—is steadily eroding.
Impact on the Canadian Mortgage Market
When Canada’s largest trading partner is led by a president who bases decisions on personal grievances, it creates a climate of chronic uncertainty. Businesses delay investments, and families second-guess significant decisions such as buying a home or relocating. This uncertainty is reflected in the Canadian mortgage market, where bond yields have been pushed lower by safe-haven flows yet remain volatile amid tariff threats. With lenders cautious about extending credit during economic shocks, fixed mortgage rates—although currently below their long-term averages—are subject to sudden changes.
For mortgage borrowers, this market volatility means that selecting a mortgage term is more than a simple choice between fixed or variable rates—it’s a strategic decision with long-term financial consequences. Economic predictions suggest that lenders raise risk premiums when uncertainty reigns, causing a divergence between variable and fixed rates. This can complicate borrowers' decisions to lock in the best mortgage rates.
Fixed vs. Variable: Navigating Your Mortgage Term Choice
Traditionally, fixed-rate mortgages have provided borrowers with stability in a fluctuating economic environment, while variable rates have offered the potential for cost savings when market conditions are favourable. However, in a climate where tariffs—and the resulting trade tensions—can change the economic outlook overnight, the traditional benefits of each option must be reassessed.
The Case for Fixed-Rate Mortgages
Fixed-rate mortgages lock in your interest rate for the loan term, offering predictability on your principal and interest payments and protecting you from sudden rate increases. In an environment where the Bank of Canada might eventually need to cut its policy rate to stimulate a slowing economy, locking in a fixed rate could seem less attractive. Yet, if tariffs trigger inflationary pressures that eventually force lenders to raise their fixed premiums, locking in a rate could offer peace of mind and protect against a potential renewal payment shock.
For borrowers prioritizing stability—especially those with lower risk tolerance or who anticipate life changes such as a job switch or family growth—a fixed-rate option spanning three to five years might be the optimal choice. It provides a buffer against market volatility while allowing for refinancing if the economic outlook improves later, which could be as soon as in two years when the US midterm elections occur.
The Appeal of Variable Mortgages
Variable-rate mortgages (VRM) have become increasingly attractive in the current environment. With recent rate cuts and the expectation that the Bank of Canada may continue to ease its policy rate, borrowers opting for a variable rate could benefit from lower borrowing costs over time. Data from the Bank of Canada has shown that variable rates have been moving closer to fixed-rate levels even amid tariff uncertainty. If borrowers want to benefit from lower mortgage payments during their mortgage term, they may choose adjustable-rate mortgages (ARM). Unlike payments on VRMs that remain unchanged as interest rates fluctuate, monthly payments on ARMs change alongside the BoC’s policy rate and your lender’s prime rates.
Mortgage brokers have observed more recently that the share of variable mortgages in new applications has risen sharply—from single-digit percentages to nearly 40% in some cases. This mortgage selection trend suggests that more Canadians are willing to take on short-term volatility in exchange for potential long-term savings. However, the risk remains that should inflation rebound unexpectedly, or if counter-tariff measures create renewed uncertainty, variable rates could rise quickly—potentially offsetting any initial savings.
Balancing the Two Strategies
A hybrid mortgage may be the ideal type of mortgage for many borrowers. Some experts recommend splitting a mortgage between fixed and variable components to hedge against uncertainty. This strategy allows borrowers to lock in a portion of their rate while keeping the other portion flexible enough to benefit from future rate cuts. A hybrid strategy balances risk and opportunity costs, which is particularly appealing when market volatility is high.
Key Considerations for Borrowers
When deciding on a mortgage term during these turbulent times, consider the following:
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Economic Outlook: Assess the potential impact of trade policies on inflation and interest rate fluctuations. With ongoing tariff threats, market volatility is likely to persist.
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Financial Stability: Evaluate your own financial stability and long-term goals. If your income is stable and you have a healthy debt-to-income (DTI) ratio, you might afford the risk of a variable (VRM) or adjustable (ARM) mortgage.
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Flexibility Needs: Consider your lifestyle and any anticipated changes. Short-term fixed options are preferable if you expect to move or refinance soon.
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Risk Tolerance: Determine how comfortable you are with uncertainty. While the prospect of lower rates is enticing, a sudden rate hike could impose significant renewal payment shocks.
Final Thoughts
The most considerable cost of Trump’s tariffs may not be measured solely in trade deficits or lost billions in commerce—it’s the erosion of economic confidence. As uncertainty looms, Canadians must carefully evaluate their mortgage term selection decisions. Whether they choose a fixed rate for its predictability or a variable rate for its potential savings, the key is to match their choice with their risk tolerance and long-term financial goals.
Consulting with a licensed and trusted mortgage broker or mortgage expert can provide clarity for those who feel overwhelmed by the complexities of the Canadian mortgage market. After all, the best mortgage rates and terms aren’t found by simply watching the news—they’re secured by proactively searching and negotiating. Interest rates rise and fall, so whether you prefer shorter or longer terms for your mortgage solution, it’s best to lock in your discounts before even higher rates take hold.
In a time when tariffs and trade wars introduce constant shifts and volatility in market dynamics, choose your mortgage term with an eye on stability, flexibility, and your personal financial journey. If you’re unsure about the best path forward, consider contacting a mortgage expert for personalized advice tailored to your unique financial situation.
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