How Canadian Mortgage Rates Will Be Impacted by Lukewarm Employment Data
January 12, 2026
Last week’s most noteworthy mortgage-rate related update was the release of the latest US inflation data, for December.
The US Consumer Price Index (CPI) held steady at 2.7% on a year-over-year basis last month, in line with consensus expectations.
The CPI rose by 0.3% month-over-month, up from 0.1% in November.
The month-over-month result was a little above the consensus forecast of 0.2%, and it confirmed that US prices increased at the margin in December. (Although economists noted that the November data may have been skewed by the lack of reliable price data during the US federal government shutdown.)
The primary drivers of current US inflation are costs that Americans are least able to substitute away from: food, shelter costs, and energy. That means that the average American is feeling every basis point of those price increases – and the latest report confirmed that US inflation remains stubbornly above the US Federal Reserve’s 2% target.
US bond yields were largely unmoved by the December inflation data. While it reassured bond-market investors that US price pressures didn’t accelerate by much last month, it also didn’t support additional near-term rate cuts by the Fed.
On that note, US bond-market investors are currently assigning a 95% probability that the Fed will pause at its next meeting on January 28.
The Latest on Mortgage Rates
Government of Canada bond yields remained range bound last week, and fixed mortgage rates were unchanged.
That said, I continue to believe that fixed rates will retain an upward bias for as long as concerns about volatile US trade policy, rampant US federal government spending, and sticky US inflation pressures remain.
The discounts offered on variable-rate mortgages shrunk a little last week.
Like the Fed, the BoC isn’t expected to move its policy rate over the near term. But the Bank’s recent communications have tilted to the dovish side of late, and I continue to believe that its next move will be a cut.
Insider’s Tip for Borrowers
Closing costs can be a nasty surprise for buyers who haven’t planned for them.
This calculator will help you estimate them, and this blog post provides a detailed explanation of each closing-cost category.
My Take on Today’s Mortgage Options
My advice is unchanged from last week.
Fixed rates are currently offered at about their long-term average levels, and three- and five-year fixed rates remain the most popular choices.
The premium that borrowers must pay to add additional years to their fixed-rate term has been increasing and will probably continue to do so. For as long as the spread between three- and five-year fixed rates remains minimal, I think the five-year fixed-rate term offers slightly better value.
I still expect today’s variable mortgage rates to produce the lowest borrowing cost over their full terms (despite my expectation that additional BoC rate cuts over the near term are not likely).
That said, anyone choosing a variable rate should do so only if they can live with its inherent potential for volatility. Borrowers must also have the financial capacity to withstand higher costs (and in some cases, higher payments) should my assessment prove incorrect.
Three Posts Every New Visitor to My Blog Should Read
This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages.
This post provides a detailed breakdown of the very different ways that lenders calculate their fixed-rate mortgage penalties. The amounts charged can vary significantly from lender to lender. A lower penalty can save borrowers thousands of dollars if rates drop.
This post provides a detailed summary of the key terms and conditions to pay attention to in your mortgage contract.
